Give the gift of stocks this holiday season

Forget the iTunes gift card this holiday season. Why should you give a gift with no potential to grow when you can give a share of, say, Apple instead?

Giving stock doesn't have to break the bank either, as there are multiple ways to give shares as presents, including gift cards for purchasing fractional shares of stock. From a tax standpoint, giving the gift of stocks also has the potential to benefit the giver. With the U.S. stock market at an all-time high, investors may want to lighten their tax burden from gains by transferring shares to charity or to a family member.

5 financial choices that will haunt your money for life:

5 financial choices that will haunt your money for life
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5 financial choices that will haunt your money for life

Sitting on the markets sideline

While the stock market is soaring to new highs, half of Americans are being left out of the gains. Bankrate found that only 46% of adults have money invested and only 18% of the youngest adults are involved in the market.

While many people fear losing money, the true concern should lie in missing out a potential fortune. Over the long-term, a well-balanced portfolio will always come out with a net gain. With compound interest at stake, investing as early as possible is the smartest move. 

If you're not already in the stock market, now is the time to start. If you have a longer investment period in mind, it could make sense to take on more risk.

Not having a rainy day fund

There are so many things that can go wrong in life and someone who is smart with their finances will be prepared for anything. Expensive emergencies like a car breaking down or a medical emergency can happen whether you are ready for it or not.

Experts recommend your emergency savings be able to support you for three to six months. That's a conservative estimate for how long it takes to find a new job after being fired, for instance.

Having enough money in an easily accessible emergency fund prevents you from taking out loans in desperation or from going into debt.

Waiting to pay off debt

After investments and emergency savings, you may feel your paycheck dwindling. That feeling will only get worse if you don't pay off outstanding debts. 

From student loans to mortgage payments, debts are pesky. But the thorn will only get sharper over time if you ignore them.

A team of researchers writing in the Harvard Business Review this year suggested paying off the largest debts with the highest interest rates first. Credit card interest rates are notoriously high, so paying those off before going after more manageable debt, like student loans, may be a smart move.

If you're stressed out by debt, these strategies may help.

Not asking for a pay raise

Bankrate found that only 48% of working Americans got a bump in salary over the last year, and often because they aren't asking for it. 

Chickening out of a salary negotiation, especially at the beginning of your career, could cost you $1 million in lifetime earnings.

By understanding your worth and the value you provide at work, you can earn more every year and maybe even retire early. If your company won't give you that raise, it may be time to search for a new job where you are payed in accordance to your value.

Spending too much money

Overspending is a problem many people fall victim to, but you shouldn't spend all the money you make, according to Eric Roberge, a certified financial planner and founder of Beyond Your Hammock

"Spending right at your means, even if you don't go over and spend more than you earn, is like trying to take a race car up to 200 miles an hour with a warped wheel," he wrote in an article on Business Insider.

"If anything goes wrong — you hit a bump, you swerve, whatever — you're done. There's no second option when you're going full throttle in your financial life. There's no safety net."

Leaving room in your budget to save some of your earnings will set you up so you're not scrambling for money when you need it most.

In other words, learn to live below your means.


In fact, this could be your last year to take advantage of that tax move. Two tax bills that Congress is working to reconcile call for nearly doubling the standard deduction while eliminating many other deductions. The final bill will likely reduce the number of people who itemize and take advantage of the charitable deductions, says Ray Hawkins, vice president of financial and estate planning at AEPG Wealth Strategies in Warren, New Jersey.

"Donors who believe they might be affected by this scenario next year should consider increasing their charitable gifts this year," Hawkins says.

[See: 7 Dividend Stocks to Benefit From Trump Tax Changes.]

Before you stuff someone's stocking with shares of stock, here's what you should know.

How much can you give? The annual gift tax exclusion for 2017 is $14,000. That means each parent or grandparent can give up to $14,000 per person without filing a gift tax return – Form 709 with the IRS – says Michael Solari, principal of Solari Financial Planning in Boston.

For example, one parent could give $14,000 to each one of four family members – two adult children and two grandkids, for example – for a grand total of $56,000. That gift doesn't have to be cash and can take other forms, such as stock, mutual funds or exchange-traded funds. "This is a great strategy if you have a very low basis in a stock and are in a higher income tax bracket," Solari says. "The kids could sell the stock and pay as little as zero percent capital gains tax on it."

It's also a way to interest new investors in the stock market. By giving these newcomers a stake in a investment, they can follow its performance and learn from that experience to become better investors.

One caveat, however: Hold off making such gifts if you have children nearing college age or attending college. Because children's assets are assessed at a higher rate than the parents, it could disqualify you from financial aid, which could be tens of thousands of dollars, Solari says. "If you are in this situation, it is best to wait, if possible, until your last child is in his or her final semester of senior year," he says.

Bypass the brokerage to give shares. If you don't want to open a brokerage account for the gift recipient, you have other ways to give stock. Some companies including Southwest Airlines Co. (LUV), Verizon Communications (VZ) and Harley-Davidson (HOG) allow investors to buy stock directly, also called a direct stock purchase plan. Many such companies have minimum purchase requirements ranging from $100 for Paychex (PAYX) to $500 for Coca-Cola Co. (KO).

Websites such as also let you buy individual shares of more than 110 companies, from the pricey (AMZN) to the more affordable Yum Brands (YUM), known for its fast food restaurants, including Taco Bell and Pizza Hut. The recipient gets a framed stock certificate from companies that still issue paper certificates. Keep in mind, though, most companies including Apple and the Walt Disney Co. (DIS), have stopped doing so.

Or you can go the stock gift card route. Stockpile offers gift cards for more than 1,000 stocks and 100 ETFs, and even lets investors buy fractional shares starting at $5. The value of the gift is fixed until the gift card is redeemed. Then its face value is converted into fractional shares of stock that fluctuate with the market.

[See: 8 Things to Consider When Choosing an Online Broker.]

If you already own stock and want to give some of your shares as a gift, you'll need to open a brokerage account for the recipient or, if the person is under age 18, a custodial account that names an adult, typically a parent, as custodian. To transfer shares, contact your brokerage and ask for a stock transfer form.

Set up the gift to keep on giving. To get the benefit of compounding, consider a dividend reinvestment plan, says Peter J. D'Arruda, president and founding principal of Capital Financial and Insurance in Apex, North Carolina. With a DRIP, the cash dividends are reinvested in additional shares. Most companies require that you own at least one share of stock before you can enroll in its DRIP plan.

You can buy shares of companies with dividend reinvestment plans at Minimum investment amounts and fees, which First Share lists, will vary by company.

D'Arruda likes this gift because it's educational."This way, they get a gift each month of more shares of stock, and the person who receives this gift sees the value of investing, compounding and time," he says.

Get the tax benefit from donating to charity. Thanks to this multiyear bull market, selling appreciated stocks and donating the proceeds to charity is not the most efficient form of giving, Hawkins says. Instead, it's more tax-efficient to donate appreciated securities directly to charity.

For example,let'ssay a retired couple in the 15 percent tax bracket for long-term capital gains decides to sell stock they originally purchased for $500 that has appreciated to $2,000. The couple would pay $225 in federal tax on the $1,500 gain that was realized from the sale, Hawkins says. "If they donate the rest of the money from the stock sale, they would receive a tax deduction of $1,775," he says. "Assuming they're in the 25 percent income tax bracket, their tax savings would be about $443."

Conversely, investors should avoid donating shares with a loss. For example, an investor is better off selling the shares for a $1,000 investment that is now valued at $750, realizing the loss and then giving the $750 in cash to charity, Hawkins says.

[See: 10 Tax-Loss Stocks to Avoid in December.]

For investors who are 70.5 and older and must take required minimum distributions from their individual retirement accounts, another option is to donate the RMDs by making a qualified charitable distribution, which is a direct transfer of the funds to a qualified charity.

Copyright 2017 U.S. News & World Report


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