Transferring stock to another person is easy. Most companies provide a link with stock transfer instructions on their websites or direct you to a stock transfer agent who handles stock transfers for the company. There are no tax implications for the recipient when the shares are transferred, but you may face a gift tax if the value of the stock transfer exceeds a certain amount.
When you purchase a stock, you receive what's called a stock certificate, which is a legal document proving your ownership of the shares. If you decide to transfer your shares to someone else, you'll have to perform a stock transfer using a stock transfer form. You can obtain the form by visiting the website of the stock registry agent or contacting the agent by phone.
Print the "Stock Transfer Form," fill it out in its entirety, and endorse the stock certificates. You'll also have to obtain a medallion guarantee from an approved financial institution. Once you're satisfied that you filled everything out correctly, mail the stock transfer form and the stock certificates to the agent.
Every year the Internal Revenue Service publishes an amount, referred to as the annual exclusion limit, that you're allowed to give to another person without having to fill out a gift-tax return. In the years, 2013 through 2017, the amount was steady at $14,000. However, for 2018, the annual gift tax exclusion limit has been raised to $15,000. If the value of your stock transfer is above the annual limit, you'll have to file a gift-tax return using IRS Form 709. Ordinarily, the gift tax can be as high as 40 percent, but most taxpayers don't pay a gift tax because of the unified credit, which applies to both the gift and estate taxes.
In 2018, the unified credit for individuals is $11.18 million – a figure which more than doubled from the previous year with recent 2017 tax reforms – that applies to every taxpayer over his lifetime. This means you can apply the excess of the value of the stock transfer against the unified credit and not have to pay a gift tax although you'll still have to file a gift-tax return.
Tax Impact to Recipient
It is worth noting, the Tax Cuts and Jobs Act of 2017 made sweeping tax reforms. One of the many changes for years 2018 through 2025, is the way long-term and short term capital gains are taxed. Prior to the Act, long-term capital gains taxes were tied to ordinary federal income tax rates. Now, long-term capital gains have their own tax brackets ranging from a 0 percent bracket for $0 to $38,601 in qualifying dividends or long-term capital gains, to a 20 percent bracket for gains of $425,801 and higher. Although you avoid the gift tax, the recipient will have to pay a capital gains tax if she makes a profit off the shares. In general, the IRS uses your cost basis to establish cost basis for the recipient if she sells the shares for a gain.
For instance, if she sells the shares within one year of receiving them, she pays a short-term capital gains tax, which could be as high as 37 percent. Because short-term capital gains are taxed at ordinary income tax rates, this can range from 10 percent to 37 percent under new reforms. If she sells the shares past one year, she pays the long-term capital gains tax of 20 percent or lower, depending on her income bracket. However, if she has a modified adjusted gross income higher than $200,000 as an individual, she could find herself subject to the additional net investment income tax, or NIIT, of 3.8 percent.
If your cost basis fell at the time of the transfer and the recipient sells the shares for less than that, the IRS uses the cost basis at the time of the transfer to calculate her capital loss.
- grandparents with grandchild image by Pavel Losevsky from Fotolia.com