Tax implications, benefits of gifting shares to children (2024)

FAQs

Tax implications, benefits of gifting shares to children? ›

At present, the IRS lets you gift up to $15,000 worth of cash or stock per year per person before it counts toward your lifetime exemption. That means you could gift three different children $10,000 worth of stock shares each, and you shouldn't have to pay tax on any of those transactions.

The annual gift tax exclusion entitles you to give away up to $17,000 per person per year as of 2023. You can use the lifetime exemption if the value of the stock is more than the annual exclusion. The lifetime exemption is $12.92 million as of 2023.

Section 47 exempts capital gains on gifting of shares, even though it falls under the definition of “transfer”. However, if the recipient of the shares falls under the definition of relative as per Section 56, then there is no tax due in the hands of the receiver.

Inheriting Stock

In general, if you have assets that have low cost basis it is usually better for your heirs to inherit the assets as opposed to gifting it to them.

The passing of Bill C-208 has eliminated this disadvantage and now allows families to transfer shares of their small businesses to their children or grandchildren and be eligible for the same lifetime capital gains exemption.

a gift of an asset is only tax free when it is between spouses/civil partners or to a charity. as these shares are to her children, this is classed as a sale.

BENEFITS TO THE GIVER

For example, you invested $8,000 in a company's stock that, after a few years, is now worth $16,000. If you sold the stock, you would owe capital gains on the $8,000 earned above the principal investment. If you gift it, however, the tax liability passes on to the recipient.

Consider the potential impact of capital gains taxes

If you gift cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications to the donor. But if you give appreciated securities, the capital gains taxes can be significant.

The transfer of shares from an online demat account is possible, but you may have to physically fill out delivery instruction slips and submit them. Also, once a gift of shares is executed, it can't be cancelled.

May I deduct gifts on my income tax return? Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).

How do I avoid paying capital gains tax on inherited stock? ›

Inherited Stock and Estate Planning

Because heirs will not have to pay capital gains taxes on stock that are unsold at the time of a decedent's death, benefactors should resist the urge to sell off the equities they plan to bequeath to their heirs during their living years.

Giving your business shares to your children can help you avoid income tax, as this kind of transfer isn't taxed. Unlike selling the business, where the company needs to earn much more than what you actually take home due to double taxation, gifting bypasses this.

What's the difference between stock that's inherited and stock that's gifted? Unlike gifted stock, inherited stocks do not take the original purchase price into consideration for tax purposes. If you inherit stock, the cost basis is taken from the market value of the stock on the date the donor died.

Gift Stock Over Cash

The reason is that by giving away stock that has appreciated in value (and held at least 12 months), you do not need to recognize the capital gain in the process. By gifting appreciated stock, you avoid any long-term capital gains tax liability that you would otherwise owe in the future.

The transfer of a Capital Asset is taxable as Capital Gains. However, the definition of 'transfer' as per Section 47 specifically excludes gifts. Thus, the gift of shares and securities is not taxable in the hands of the sender of the gift.

The cost basis of stock you received as a gift ("gifted stock") is determined by the giver's original cost basis and the fair market value (FMV) of the stock at the time you received the gift. If the FMV when you received the gift was more than the original cost basis, use the original cost basis when you sell.

Stocks and cash: Inherited cash generally isn't taxable unless the estate exceeds the applicable estate or inheritance taxes. Stocks also aren't taxable unless they are subject to estate or inheritance taxes but could result in capital gains taxes when you sell them.

What are the fees for gifting? The standard off-market transfer fee of ₹25 or 0.03% per stock, + 18% GST whichever is higher, is applicable. There are no additional charges for gifting securities. This is automatically debited from the sender's trading account.

Many stock brokers offer custodial accounts, a type of investment account that a parent or guardian can open for a child. You can use a custodial account to make investments for your child, and when they turn 18, control of the account transfers to them.