Follow the rules when giving the gift of stock
For the Nevada Appeal
It is harder to receive than to give. But giving to young folks can be a wonderful thing to do.
Part of the act of giving is to show love and pride in that young person and part is to help them establish a savings habit.
If you have stock that has gone down in value, DON’T give that. Sell it instead and get the income tax savings from the loss on your own individual income tax return.
For a stock that has gone up in value, a gift could be considered.
The gift tax rules allow each of us every calendar year to give a total of up to $13,000 of cash and/or property to each person. There are other gift tax rules-if you want a copy of our free handout, please let us know.
Since the young person (best if they are age 24 or older) will probably be in a “low” or “no” income tax bracket, income tax can be saved by giving the stock for the young person to sell it. The “tax basis” or your cost transfers to the young person. When they sell it, they have a capital gain to realize. Since your holding period also transfers, they will probably have long term capital gain.
The long term capital gain is NOT taxable in 2011 and 2012 under current tax laws, If the individual has taxable income (including the stock gain) of less than $34,500. That tax rule may be continued for future years, but Congress needs to act to do that.
An example is a stock you bought for $7,000 that is worth $12,000 now. If you sell it now, you may be taxed on the $5,000 gain. Your tax might be $750 (15 percent of $5,000). If you give that to your daughter, who is age 24 or older, she probably could sell it and have no tax to pay if her income is low enough. That’s like giving her an extra $750.
You could give the stock to a grandchild (or child, or other) who is younger than age 24. That is no problem, as long as they hold on to it and don’t sell it until they are older than age 24. Otherwise, a quick sale could result in the “kiddie tax” rules coming into play where part or all of the gain is taxed on the parents return.
What a mess our tax laws are.
If you give the stock (with help from your stockbroker), it’s a great opportunity to write a “love letter.” It could say “this is a gift, my tax basis or cost is $xxx and I’m so proud of you and love you,” etc. Some young persons have told me the letter was more treasured than the gift!
Have you heard: “Whenever I fill out an application, in the part that says ‘If there’s an emergency, notify,’ I put in DOCTOR …”
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.