How to Give Stocks as a Holiday Gift

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.

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 may not have any long-term dream for which they're actively 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 stock gifting platform GiveAshare lists as the top 10 most popular stocks to give loved ones (as of October 2022):

1. Tesla Inc. (TSLA)
2. Amazon.com Inc. (AMZN)
3. Manchester United PLC (MANU)
4. Atlanta Braves Holdings Inc. (BATRA)
5. Harley-Davison Inc. (HOG)
6. Starbucks Corp. (SBUX)
7. Barrick Gold Corp.
8. McDonald's Corp. (MCD)
9. Madison Square Garden Sports Corp. (MSGS)
10. Domino's Pizza Inc. (DPZ)
    

Can’t Decide Which Stock to Buy? Consider ETFs!

Exchange-traded funds (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, and 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 a specific ETF that covers the sector, region, or index that might be interesting to your gift recipient, and you're likely to find many selections to choose from. 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.

Fractional Shares

You might find that buying even one share in a company is more than you can afford or want to spend. 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.

ESG Investments

If you or the stock's recipient cares deeply about how companies behave and conduct their business, then environmental, social, and governance (ESG) investments might be high on your shopping list. ESG investing basically involves 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: You can 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 a company's 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.

Gift Tax

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 $17,000 in calendar year 2023 ($18,000 in 2024) and exceed the lifetime gift tax exemption, which as of 2023 is set at $12.92 million ($13.61 million in 2024). Spouses are excluded from this tax, too, so if you are gifting stock to your husband or wife, there’s nothing to worry about.

Capital Gains

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.

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.

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.