If you want to give away some shares of stock, you don't need to sell them first. Instead, you can transfer them directly to the person or group receiving your gift. This is a generous way to pass on your unneeded investment income. Be aware that your gift can create extra taxes for both you and the recipient.
The recipient of your stock must have a brokerage account. If you want to give your stock to someone younger than 18, an adult needs to set up the account for him. Once the brokerage account is set up, the gift is pretty simple. Tell your broker which shares you want to give away and the account information of the recipient. The broker will handle the transfer and the new owner will get the gifted shares within a few days.
Capital Gains Taxes
When you sell stock, the Internal Revenue Service records what you earned from the sale versus what you originally paid. If you made money, you owe capital gains taxes. If you lost money, you get a tax-deductible capital loss. However, when you give away shares, it doesn't count as a sale. Instead, the new owner takes over as if she had bought the shares instead of you. It doesn't matter what the value of the shares were at the time of the gift. The new owner's future gain or loss all depends on what you paid for the stock.
When you give away your stock, you avoid any capital gains taxes. However, you could get hit with gift taxes instead. The IRS taxes large transfers of property. It is the responsibility of the person making the gift to pay the gift taxes. As of 2012, you can give one person up to $13,000 of property a year and not owe any taxes. If you give one person more than $13,000, it's a taxable gift and you need to report the gift to the IRS. If you want to give away more than $13,000 worth of stock, check with your financial adviser to determine if you'll owe gift taxes.
Gift Tax Exemptions
There are a few types of gifts that are exempt from gift taxes. If your gift meets one of these exemptions, you won't owe any taxes no matter how much you give away. The IRS does not tax gifts to your spouse. You can also give your stock to a qualified charity and not owe any taxes. You can make unlimited gifts to pay for another person's medical bills or tuition. For these gifts to be tax-free, they must go straight to the medical provider or school.
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.