Give the gift of stocks in 2023 — here are 4 ways to gift stock to friends, family, and charities

• Gifting stock can be more valuable than cash and a way to pass down wealth or give to charities.
• Stock gifts valued at less than $18,000 remove tax liability from the gifter.

What's a better gift to give your loved ones this holiday season than the chance to build wealth? Although some people prefer to get cash for the holidays, you can do them one better by gifting stock.

Compared to tangible gifts that can wear and tear, stocks can be more beneficial over the long term since they can appreciate in value over time. Plus, by giving stock as a gift to your friends or family, you may even be able to gift yourself a tax break. If you're looking to give back a little more this holiday season, you can even gift stock to charities.

You can gift stocks through some of the best stock trading apps. These apps have low fees, human advisor access, and much more.

But keep in mind that there's no guarantee that the stock you gift will increase in value. Also, recipients may be subject to a robust gift tax, which may put a damper on your generous sentiment.

Here are four ways to gift stock in 2023.

4 ways to gift stock in 2023

Stock, of course, isn't a physical gift that you can buy at the store and wrap in a bow. When you gift a stock, you're delivering shares to another individual (or institution) who has a brokerage account. And senders don't have to sell the shares before transferring the stock to the recipient — doing so would leave you with a tax bill.

1. Gifting stock to friends and family

One of the most common ways to gift stock is by transferring it from one brokerage account to another. To get started, you'll need to contact your investment custodian, and you can expect to complete custodian-mandated paperwork before gifting the shares of stock, according to Brian Fry, founder and CFP at Safe Landing Financial.

For instance, if you're a current Fidelity account holder and want to gift stock to another Fidelity user, you'll need to provide a letter that contains instructions on who you're gifting to, as well as a description of the securities you're gifting. Some of the information the brokerage asks for includes the recipient's name, Social Security number, and Fidelity account number.

If you choose to transfer stock directly, the recipient can receive the full share value (or fractional share dollar amount if your brokerage allows it). However, the stock transfer process may vary for different brokerages or investment platforms.

Gifting stock you've purchased through investing apps may be possible, but could cost additional fees. For example, with Robinhood, you can transfer assets out of the app and into other brokerages, but there is a $100 fee on all partial or full transfers.

2. Gifting stock to kids

Children and minors are also eligible to receive stock as a gift through a custodial brokerage account like a UTMA or UGMA. The gifting process is the same as when you transfer stock or another security between brokerage accounts.

You also have the option to buy stock directly within a custodial account, even if you're not the parent or guardian of the reception. Grandparents, aunts, uncles, cousins, and even family friends can open and contribute through some of the best custodial accounts as long as the beneficiary is a minor.

But be careful how much contribute to a custodial account, or you may lose out on tax benefits. Under the kiddie tax rule for 2023, the first $1,250 of a child's unearned income is tax-free. The following $1,250 of unearned income is taxed at the lower child tax rate. After that, all contributions are taxed at the parent's tax rate.

3. Gifting stock to charities

You can gift stock to other individuals, but you can also gift it to charities. The process for gifting stock to charity is similar to that of gifting stock to other individuals, but the tax implications differ.

To initiate the transfer, you'll generally need to include things like the charity's name, its account information, and the stock(s) you're transferring — but you can contact your brokerage if you're not sure where to begin.

"You want to be giving your lowest basis shares to charity since charity does not pay tax, and those shares are the least valuable to you because they have the highest percentage of capital gains," explains Nicole Webb, CFP and senior vice president at Wealth Enhancement Group.

Since capital gains are taxable, she adds, you certainly want to look for your lowest basis shares and be very specific with which shares you're transferring to charity. If you sell your stock(s) before donating to charity, you'll have to account for short- or long-term capital gains taxes.

And in such situations, your tax rate can be higher if you hold the stock for less than one year. Tax rates are generally lower for assets you hold for one year or more. But if you transfer the stock directly to the charity of your choice, you won't have to worry about paying capital gains taxes.

Quick tip: Another option is to gift stock to charity by setting up a donor-advised fund and contributing low-cost basis shares. This can help stack your deductions, according to Webb.

"You can make one larger gift to that donor-advised fund and receive a larger deduction in specific tax years if you're eligible, and then give to charity in the following years out of that account," she explains.

Plus, you'll have to account for IRS deductibility limits when making charitable contributions. For tax year 2023, the annual income tax deduction limit for non-cash assets that have been appreciated is between 20% to 50% of your adjusted gross income (AGI).

4. Gifting stock through a service or gift cards

Alternatively, you could look into gifting stock or cryptocurrencies with gift cards through companies like Stockpile. They're "... almost like a transfer of an amount of cash, then [the recipient] chooses where it goes," Owens explains.

You could also purchase single shares of a company's stock through services like GiveAShare, and UniqueStockGift.com. These options even come with a certificate.

Who's eligible to gift stocks?

Everybody is eligible to gift stock, but the real question is about who will be receiving the stock, explains Webb.

"The thing to keep in mind is that the recipient of that stock if you're giving it while you're alive, receives your cost basis for that stock," says Webb.

The cost basis represents the price — as well as any trading fees or other associated expenses — you originally paid for the stock you're gifting. When you transfer stock to someone else, that person assumes the cost basis, and thus the tax liability, for the stock you've given them. In other words, gifting stock to individuals isn't a taxable event as long you remain within the allowance threshold.

The rules are slightly different for charities. The cost basis doesn't matter when it comes to gifting to charities since charities don't pay taxes, according to Webb. "So if they want to sell the stock, which most charities would, you don't have to worry about any tax consequences for charity," she explains.

Benefits of gifting stocks

Stock gifting is often done within families, especially from parents to children, says Dondrea Owens, CPA and founder of The Creative's CFO.

"A lot of parents and grandparents don't necessarily want to buy toys or just give kids money, but they will give them stock because it's a way for them to start building wealth at a very early age," Owens explains. With the added value of time, gifting stock to kids and young adults could maximize the potential return. For some, it may even be a valuable tool used to educate loved ones about money and investing.

As the gifter, you can enjoy zero capital gains tax on the appreciated value of the investment. In 2023, you can gift up to $17,000 per person (up to $18,000 per person in 2024). The current lifetime limit for gifted stock as of 2023 is $12.92 million.

Benefits of gifting stock to charity

A warm, fuzzy feeling in your chest isn't the only benefit to gifting stock to charity as you may also be able to receive a charitable deduction for the total value of gifted stock.

"If I paid $1,000 for this stock and now it's worth $25,000, I will still get a charitable deduction for $25,000," explains Dennis LaPorte, owner at UHY Advisors MI, Inc.

Moreover, you gift as much as you like to your charity of choice. "There's no maximum amount you're allowed to gift to charity in a year," says Webb.

This way, you'll also be able to give more to the organization than you would by selling the stock, paying tax on the appreciation, and then gifting whatever is left.

Tax implications of gifting stocks

When gifting stock, there will be tax implications for both the giver and the receiver. Luckily, it may be possible for both parties to come out on top. In general, when you sell an asset for more than the price you paid for it (or, your cost basis), you're subject to a tax on the capital gains. The rate is determined both by how long you hold the asset and your taxable income

However, once the gifter transfers ownership of the stock, they no longer have to worry about capital gains taxes. "When you decide to gift it, there's really nothing to be taxed," says Owens.

Still, transferring stock from one person to another won't take capital gains tax out of the equation completely. Someone will have to pay it eventually, or at the very least report the gain.

An important thing to remember with regards to capital gains taxes when you're giving a stock you own as a gift is to let the recipient know what you originally paid for it, LaPorte notes.

The value of your stock gift is also a major caveat. The IRS allows you to give away $17,000 tax-free per year, per person in 2023, and the limit increases to $18,000 in 2024. The same holds true for stocks, if you're gifting more than the gift allowance per year, as the donor, you will need to file a gift tax return and may be subject to a gift tax.

Ultimately, every situation is different, and it's best to consult with a professional about your potential tax liability before making any decisions.

Tax implications of gifting stock to charity

With charitable giving, you can deduct the complete fair market value (or current market value of the stock you're gifting) of the security you're donating.

For instance, if you originally invested $10,000 into a certain stock (and held it for more than one year), and the fair market value at the time of your donation was $40,000, you could both avoid long-term capital gains taxes and make a $40,000 charitable deduction (as long as you don't surpass IRS deduction limits).

Quick Tip: Holding assets for longer than a year ensures you'll be taxed at a long-term capital gains rate, which could be as low as 10% depending on your taxable income and filing status. Short-term capital gains are taxed like ordinary income, potentially up to 37%.

What other investment types can you gift?

You can gift most types of investments like bonds, mutual funds, commodities, or cryptocurrencies as long as the amount falls within the annual limit. In 2023, the limit for individuals is $17,000 and $34,000 for couples. In 2024, the limit is $18,000 for individuals and $36,000 for couples. And according to Webb, the gift allowance applies to the fair market value, not the original cost basis.

Whether you're gifting traditional assets like mutual funds or stocks, or offering things like jewelry, precious metals, or other alternative assets, you need to remain mindful of the fair market value of the assets you're transferring, Webb explains.

Alternatives to gifting stock

There are multiple methods you can utilize if you want a longer-term approach to gifting stock. These include setting up a custodial account or trust account.

Custodial accounts

With the custodial option, you can open an investment account for a minor (typically someone under age 18 or 21, depending on the state), and that minor will assume complete control over the account once they reach their state's age of majority.

For instance, Charles Schwab offers custodial accounts that let you gift Schwab Stock Slices (or fractional shares) to minors. These are portions of stocks or ETFs often at a lower price.

Popular custodial account options include Uniform Gift to Minor Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts. Although these accounts operate similarly, the kind of assets they hold varies. For example, UGMAs are limited to liquid assets like cash and stocks, whereas UTMAs can hold alternative investments like real estate or collectibles.

Some other gifts to help advance others' financial future may include funding 529 plans for college or Roth IRAs for children or adult children with income, according to Fry.

Trust accounts

Trust accounts function like custodial accounts, but they offer more wiggle room when it comes to transferring account ownership. In addition, they allow you, the owner, to provide specific instructions for how you want the assets distributed.

Trust accounts are managed by trustees on behalf of a third party and typically can hold assets like stocks, cash, bonds, real estate, and much more. However, there's a lot more leg work needed to set up a trust account compared to a custodial account.

Gifting stock — Frequently asked questions (FAQs)

What is a gift stock?

Do you have to pay taxes on gifted stocks?

Is it better to gift stock or cash?

What is the difference between gifted stock and inherited stock?

Is it worth gifting stock in 2023?

Gifting stock can be a great way to educate children about money and investing, defer capital gains taxes, and make charitable donations. Though there are plenty of avenues for stock gifting, most commonly it's done by transferring shares from one brokerage account to another or creating a custodial account and funding it for children and minors.

But children aren't the only ones that can benefit from being gifted a stock. Anyone with a brokerage account can be gifted a stock this holiday season.

If you're giving stock, it's helpful to gather any upfront documentation, such as the cost basis of the shares, and provide that to the recipient for their future use. As the receiver, "Keep really accurate documentation of what you received and what its valuation is at any point in time," Owens explains.

A big advantage for the gifter is that it allows you to transfer any capital gains taxes to the recipient if the shares' fair market value is greater than the original cost basis. And if you're donating stock to charity, you'll generally be able to deduct the full fair market value of the security you're donating.

Consulting with a tax professional can help strategize the timing of your gift and determine any tax liabilities you may have.