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Would selling stocks before gifting them to kid result in less tax or more tax?

I plan to gift my stocks with a long term gain of $50k to my 22 year old son who is full time student.

 

1) Which option below would result in less taxes? My effective tax rate is 30%.

Option a) What would the tax be if I sold them before gifting it to my son?

Option b) Considering that my son would have to pay kiddie tax, what would his tax be if he sold them right after transferring?

 

2) Currently, my  stocks show as long term gain. Once I transfer to him, will they become short term for him? What would his taxes be if they were short term gain?

 

Thanks for your help in answering my question.

 

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1 Best answer

Accepted Solutions
Hal_Al
Level 15

Would selling stocks before gifting them to kid result in less tax or more tax?

You're probably better off selling it.  Your top capital gain rate is probably 15%, whereas the kiddie tax is 20%  on most of a $50K gain (see https://www.marketwatch.com/story/new-tax-law-makes-dreaded-kiddie-tax-more-expensive-2018-09-24).

 

But, the only way to be sure is to prepare returns both ways and compare. It depends on the exact numbers. Your effective tax rate is not as important as your taxable income. You don't reach the 20% capital gain rate until your taxable income is over $400K (see https://www.marketwatch.com/story/your-simple-guide-to-the-new-capital-gains-tax-rates-2018-04-16). 

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3 Replies

Would selling stocks before gifting them to kid result in less tax or more tax?

Son takes your holding period so long term. Use a pro b/c you will have to file a gift tax return anyway but not a good idea if subject to kiddie tax and he does not need the money now.

Would selling stocks before gifting them to kid result in less tax or more tax?

Thank you! My son needs the money. Would you recommend that I sell them and then gift the cash to him, or do you think the tax would be lesser if I transferred as is and if he sold them?

Hal_Al
Level 15

Would selling stocks before gifting them to kid result in less tax or more tax?

You're probably better off selling it.  Your top capital gain rate is probably 15%, whereas the kiddie tax is 20%  on most of a $50K gain (see https://www.marketwatch.com/story/new-tax-law-makes-dreaded-kiddie-tax-more-expensive-2018-09-24).

 

But, the only way to be sure is to prepare returns both ways and compare. It depends on the exact numbers. Your effective tax rate is not as important as your taxable income. You don't reach the 20% capital gain rate until your taxable income is over $400K (see https://www.marketwatch.com/story/your-simple-guide-to-the-new-capital-gains-tax-rates-2018-04-16). 

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