Yes! However, your cost basis follows the stock to whomever receives it. They will owe capital gains taxes if they then sell the holding. Stock is subject to gifting limits as well.
Stocks, bonds or any other securities can be transferred as gifts. Giving the gift of stock also has benefits for the giver. If the stock has appreciated in value, the holder can avoid paying the capital gains tax by giving it as a gift. There are two methods in transferring the ownership of a stock, which depend on how it is currently being held.
If the stock is being held in certificate form, then transferring the physical stock will be required. The owner must endorse the stock by signing it in presence of a guarantor, which can be their bank or broker. There may also be a form on the back of the certificate, which relate to the transferring of ownership. After the certificate is filled out and signed, it will be rendered non-negotiable and become transferable. There are also websites, like Oneshare.com, who specifically sell shares of stock that you can gift to people.
Often though, there will not be a physical copy of the stock, as many investors own the electronic version, which stored in a brokerage account. To gift his stock, the owner should gather the brokerage account information of the party they are gifting. The next step is to contact the gifter's broker, pass on the new account information, and order the electronic transfer to the other party.
For more information on stock transfers, read How Does Someone Actually Transact Securities?
Giving the gift of stock can be a great tool to transfer wealth. One thing to note is that your cost basis will carry over for tax purposes when they sell the stock. If they were to inherit the stock, then they would get a step up in basis, potentially saving taxes assuming there is growth in the stock. Another great strategy is to donate highly appreciated stocks to charity. You not only do not have to pay the capital gains taxes, but you also get a tax deduction for the contribution. Utilizing a donor advised fund to contribute the appreciated stock would allow for you to use the proceeds to benefit many different charities.
You absolutely can gift stocks to anyone, but here are some cautions. If you’re in a high tax-bracket, by giving stocks from a brokerage account or a taxable account, in which prices have increased quite bit, to a lower-tax bracket family member, you transfer a lesser tax burden to them. On the other hand, if that low-tax bracket recipient is your child who is about to head to or currently are in college, your action may jeopardize their chance for the financial aid.
Moreover, there’s a special “Kiddie tax” that you need to watch out for. For 2016, children under the age of 19 and college students under the age of 24, who have unearned income (interest, dividends and capital gains) will be taxed at the parents’ rate once their unearned income is about $2,100. Their first $1,050 unearned income as a child or college student can be offset by the $1,050 standard deduction (assuming the child has no earned income), the next $1,050 of such unearned income will be taxed at the child’s tax rate, and above that, it’s treated as they had the same tax rate as their parents’.
So, be careful and consult with a professional before the transfer. Cheers!
From my experience, one question above all else drives gifting off stocks and options. Does the receiving party have a lower tax bracket? For example, gifting a stock or option currently valued at 12000, that originally cost 3000, purchased over one year ago. If the receiving party is in the 10% or 15% bracket they will pay no capital gains tax. Take a look at the chart below to understand why gifting may make sense.
2016 federal income tax brackets
|Tax rate on ordinary income||Single||Tax rate on qualified dividends and long term capital gains|
|Married filing jointly /
Qualifying widow or widower