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smartpandu
Level 1

My son (files tax as single ) makes income of ~36K. Is it beneficial to gift some stock to him (say 5-10K) ? What are the tax consequences for me, him.

 
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rjs
Level 15
Level 15

My son (files tax as single ) makes income of ~36K. Is it beneficial to gift some stock to him (say 5-10K) ? What are the tax consequences for me, him.

Tax consequences for you:

  • You will not have any dividend income from the stock after you give it to your son. (Any dividends that you receive before you gift the stock are taxable income to you.)
  • You will not have any capital gain or loss on the stock.
  • If the total value of your gifts to your son does not exceed $15,000 in any one year, there are no gift tax consequences.

 

Tax consequences for your son:

  • Any dividends that the stock pays after you gift it to your son will be taxable income to him.
  • If he sells the stock, he will have taxable gain or loss based on the price that you paid for the stock when you originally bought it. It will be long-term or short-term, depending on the date that you purchased it. In other words, he pays tax on any increase in value that occurred while you owned the stock, as well as on any increase in value that occurs when he owns it. (If you acquired the stock in some way other than buying it on the open market, it gets more complicated.)
  • It's not clear whether your son might be subject to kiddie tax. If so, any dividends or capital gains from the stock will be unearned income to him, and could therefore be subject to kiddie tax.

 

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3 Replies
rjs
Level 15
Level 15

My son (files tax as single ) makes income of ~36K. Is it beneficial to gift some stock to him (say 5-10K) ? What are the tax consequences for me, him.

Tax consequences for you:

  • You will not have any dividend income from the stock after you give it to your son. (Any dividends that you receive before you gift the stock are taxable income to you.)
  • You will not have any capital gain or loss on the stock.
  • If the total value of your gifts to your son does not exceed $15,000 in any one year, there are no gift tax consequences.

 

Tax consequences for your son:

  • Any dividends that the stock pays after you gift it to your son will be taxable income to him.
  • If he sells the stock, he will have taxable gain or loss based on the price that you paid for the stock when you originally bought it. It will be long-term or short-term, depending on the date that you purchased it. In other words, he pays tax on any increase in value that occurred while you owned the stock, as well as on any increase in value that occurs when he owns it. (If you acquired the stock in some way other than buying it on the open market, it gets more complicated.)
  • It's not clear whether your son might be subject to kiddie tax. If so, any dividends or capital gains from the stock will be unearned income to him, and could therefore be subject to kiddie tax.

 

smartpandu
Level 1

My son (files tax as single ) makes income of ~36K. Is it beneficial to gift some stock to him (say 5-10K) ? What are the tax consequences for me, him.

Thanks much for your response @rjs .

 

The rules for kiddie tax do not apply in my son's case.

 

I acquired the stock through company ESPP plan.  What are the complications here ? I assume the  cost-basis for son is my purchase price ??

 

Mike9241
Level 15

My son (files tax as single ) makes income of ~36K. Is it beneficial to gift some stock to him (say 5-10K) ? What are the tax consequences for me, him.

check with the administrator of the plan. the plan may not allow a non-employee to own the stock. even if it's allowed it could be a disqualifying disposition for you.   

your son needs the following information - your original cost basis and the fair market value (FMV) of the stock at the time you gave the stock - due to special rules for reporting gain/loss on sale of gifted items.

  • If the FMV when you gave the stock was more than your original cost basis, he uses the original cost basis when he sells.
  • If the FMV when you gave the stock was less than the original basis, and he later sells the stock for:
    • More than the original basis, he uses the original basis.
    • More than the original basis but less than the FMV at the time of the gift, the selling price becomes the cost basis. there will be no gain or loss in this situation.
    • Less than the FMV at the time of the gift, use the FMV at the time of the gift.

 

see these links 

https://springwaterwealth.com/avoiding-the-double-tax-trap-with-an-employee-stock-purchase-plan/ 

https://wcginc.com/espp-stock-cost-basis/ 

 

as you will learn your cost basis may be more than what you paid because ordinary income was included on your w-2.

 

 

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