Planning Briefs

Giving Stock To Your Kids An Easy, Tax-Efficient Way

Published Tuesday, December 2, 2014 at: 7:00 AM EST

An easy, tax-smart way to transfer assets to your heirs is to give stock to them directly rather than selling the shares and giving them the cash. Because you no longer hold the stock, it's removed from your taxable estate and generally won't count as an asset for you for other financial purposes.

For 2017, you can use the annual gift tax exclusion to give away assets valued at up to $14,000 ($28,000 for joint gifts by a married couple) to a recipient without paying gift tax. (And you can make such gifts to as many people as you choose.) Give more than that to anyone in a particular year and you may be able to shelter the excess by using the unified estate and gift tax exclusion ($5.49 million for 2017).

For your child, income tax rules differ slightly depending on whether the stock would have produced a tax loss or a taxable gain if you had sold it.

If the stock would have produced a tax loss - and if the child then sells it at a taxable gain - the child's "basis" for figuring the size of that gain is the same as your basis (essentially what you paid for the stock). If it's later sold at a loss, the child's basis is the stock's fair market value (FMV) when it's transferred.
If the stock would have produced a taxable gain (that is, the FMV is higher than your basis), your child uses your basis to calculate any future gain or loss.

On the other hand, depending on your situation, sometimes it may be better to sell the stock, claim a tax loss, and then give the proceeds to your child.

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).