Coming up with good gift ideas isn’t always straightforward. Younger children usually desire the latest fad (which they’ll probably soon lose interest in), while older generations tend to buy what they need and can be difficult to satisfy.
In many ways, you can’t go wrong with giving shares in a company as a gift. Sure, this may not generate as much excitement as, say, the latest PlayStation console or smartphone. However, stock is one of the few things that has a decent chance of growing in value, turning money into more money. There are few gifts in stores that have that attribute.
- Stocks make satisfying gifts, regardless of the recipient’s age or the occasion.
- When choosing which stock to buy, consider exchange-traded funds (ETFs) as an alternative to regular shares.
- Shares can be gifted via brokerage accounts, through specialist online apps, or, in some cases, directly from the company.
- If the stock you choose exceeds your budget, consider buying fractional shares instead.
- Gifting stock may be subject to gift tax and will trigger a taxable event when the recipient eventually decides to sell.
Buying gifts that adults actually want without breaking the bank is no easy task, but giving a share of company stock could perhaps help them one day generate enough money to purchase that one thing they don’t have and have always wanted. For kids, it’s a slightly harder sell because they probably don’t have any long-term dream for which they’re saving up. But that’s bound to change at some point in the future, and learning about managing money and investing early can serve them well later in life.
Which Stock Should I Buy?
There are many companies out there, and choosing the right stock(s) requires careful consideration. The goal is to make this gift as compelling and profitable as possible, so you’ll want to consider the interests of the person for whom you are buying, as well as the growth potential.
Consider what the recipient likes, and find a company that operates in that area. Then go through its accounts, apply some valuation metrics, or speak to an advisor to determine if it would make a good investment. Your best bet would be to draw up a shortlist of several companies first and then analyze each until you find one that is attractively priced and poised to grow in value for years to come.
If you need some inspiration, take a look at what GiveAshare lists as the top 10 most popular stocks to give loved ones (as of October 2022):
- The Walt Disney Co. (DIS)
- GameStop Corp. (GME)
- Apple Inc. (AAPL)
- Manchester United PLC (MANU)
- The Coca-Cola Co. (KO)
- Virgin Galactic Holdings Inc. (SPCE)
- Nike Inc. (NKE)
- Nintendo Co. (NTDOY)
- Atlanta (Liberty) Braves (BATRA)
- Starbucks Corp. (SBUX)
Can’t Decide Which Stock to Buy? Consider ETFs!
ETFs are a great way to gift multiple stocks in one transaction. You can choose index-based ETFs, such as SPY, IVV, or VOO, among many others, all of which track the Standard & Poor’s 500 (an index of 500 large U.S. companies). Or you can choose a sector-based ETF that reflects the interests of your gift recipient. A young one might be interested in planes, for instance, for which there is a specific ETF that contains major airline stocks: JETS.
There is virtually an ETF for most any sector or asset class, which should make your decision a lot easier. You can search the web for the specific ETF that covers the sector, region, or index to which you’re attracted, and you’re likely to get many selections back from which to choose. Also, to make ETFs even more attractive, they function like regular shares and can be bought and sold on a fractional basis (see below), too.
You might find that buying even one share in a company is more than you can afford. In this case, fractional shares—if available—may be your best option.
When they go public, companies issue a set number of shares, each of which represents a portion of ownership. However, it is sometimes possible to buy a slice of one share or stock, called a fractional share, and to essentially invest a dollar amount of your choosing in a given company. Unless you are feeling especially generous, this may be a necessary option for higher-priced shares.
If you or the stock’s recipient cares deeply about how companies behave and conduct their business, then environmental, social, and governance (ESG) investments probably should be high on your shopping list. ESG investing basically involves only purchasing stocks in companies that, according to independent third parties, prioritize corporate responsibility. There are three boxes that need to be checked before a company can qualify as an ESG leader, and they are:
- Environmental: The E in ESG looks at how a company takes care of the planet. This can include how it generates energy and disposes of waste as well as its treatment of animals.
- Social: The S in ESG examines how the company manages relationships with its stakeholders, including employees, suppliers, customers, and the communities where it operates.
- Governance: The G in ESG deals with how the company is run. Important factors considered here include fair executive pay, shareholders having their say, a well-balanced board of directors, and the use of accurate and transparent accounting methods.
In short, the goal is to make as much money as possible by investing in companies that are deemed good for society. Obviously, going the ESG route means limiting your choice of available investments. However, there’s also the argument that using an ESG-based screening process to select stocks will result in investment in companies that are at a lower risk of being hit by big scandals that damage their share prices.
Where to Buy Stock Gifts
Gifting stocks has never been easier and can be achieved from the comfort of home fairly quickly. There are several options available to you. Some of the most common include:
- Brokerage account transfer: Buy the stock with your brokerage account and transfer it to the recipient, assuming they also have an account. For kids, you’ll probably want to set up a custodial account, leaving you in control until they reach a certain age.
- From the source: Some companies allow you to purchase their stock directly from their website.
- Online app: There are plenty of apps that specialize in gifting stock. Examples include GiveAshare, Unique Stock Gifts, and Stockpile.
Gifted Stock Tax Considerations
Before taking the leap and buying your loved ones stock as gifts, it’s important to be aware of any present or future tax bills. The Internal Revenue Service (IRS) might charge you for making the gift if it’s a large one. The recipient—if all goes according to plan and the stock’s value increases—also will be expected to pay capital gains tax when they eventually decide to cash in on your present.
The gift tax, a federal tax applied to gifts, won’t be an issue for most people. Donors aren’t taxed on stock gifts unless they are worth more than $16,000 in calendar year 2022 ($17,000 in 2023) and exceed the lifetime gift tax exemption, which as of 2022 is set at $12.06 million ($12.92 million in 2023). Spouses are excluded from this tax, too, so if you are gifting stock to your husband or wife, there’s nothing to worry about.
When a stock is eventually sold, the IRS must be notified, and the investor (the gift recipient, in this case) will be taxed accordingly, depending on the holding period, their tax bracket, and the gain that was made relative to the original purchase price.
If the recipient sells the investment within one year at a profit, they will have made a short-term capital gain, which is taxed as ordinary income. Waiting beyond a year to sell generally leads to a better outcome because long-term gains are taxed at lower capital gains rates.
Like ordinary income tax, capital gains rates become steeper as an individual’s income for the tax year grows.
Gift givers should also know that the recipient’s capital gain is determined by how much the investment originally cost. In other words, if the stock was purchased for $100 and several years later sold for $1,000, the recipient would be taxed on a profit of $900.
Of course, there’s a chance that the gift doesn’t pay off. If things go pear-shaped and the stock is eventually sold at a loss, it still must be reported. Fortunately, capital losses can serve as deductions on the investor’s tax return, bringing down the total amount of capital gains or, failing that, shaving up to $3,000 per year off regular taxable income. Capital losses can also be deferred for use in future years until the total amount of the loss is exhausted.
How do I gift stock to my child?
If you plan to give stock to a minor, you can set up a custodial account on their behalf. You’ll then be in charge of the stock held in the account until the child reaches a certain age, usually 18 or 21. Hopefully by then, the beneficiary will be mature enough to manage their own finances and make smart investment decisions.
What are the tax consequences of gifting stock?
Gifts are only taxed if they are worth more than $16,000 in 2022 or $17,000 in 2023, not destined for a spouse, and exceed the lifetime gift tax exemption, which as of 2022 is set at $12.06 million, and for 2023 is set at $12.92 million. These generous allowances generally mean that a taxable event isn’t triggered until the gifted stock is eventually disposed of by the recipient. The amount of tax paid on a profitable sale depends on the beneficiary’s income, the holding period, and the gain that was made relative to the original purchase price. Losses, too, must be declared but can be used to reduce tax liabilities.
Can I transfer stocks I own to another person?
Absolutely. The owner of company stocks is permitted to transfer ownership without incurring any penalties. The process is fairly straightforward. Online brokers usually provide an option to make a transfer on their platforms. All you need to do is give your written consent and basically fill out some forms.
Physical share certificates, too, can change hands. To complete this type of transaction, you’ll need to get in touch with the company’s transfer agent, whose contact information should be visible in the investor relations section of the company’s website.
The Bottom Line
Looking for a gift for someone’s birthday or for the holidays but coming up short on ideas? You might want to consider giving a gift of stock. You’d be giving a present that has the potential to grow in value over the years, and not many gifts can offer that.
It’s easy to give a gift of stock, through your brokerage account, directly with a share transfer, or from the company itself. With thousands of stocks, it can be hard to decide which to choose. If that’s the case, you might want to consider ETFs, which are baskets of multiple stocks represented by a single share or more. Also, consider using fractional shares to give a portion of an expensive stock or simply to give a gift based on a dollar amount.
There are unlikely to be any immediate tax consequences in giving a gift of stock. More likely, the tax considerations would come when the shares are sold in the future.