Gifting Stock for Tax Savings refers to the strategic transfer of appreciated stocks from one individual to another as a means to reduce taxable income and minimize capital gains taxes.
When an individual gifts stock that has increased in value, the recipient assumes the donor’s cost basis, meaning they won’t incur capital gains tax until the stock is sold. This can be an effective tax planning strategy, especially for high-net-worth individuals looking to reduce their taxable estate or for those who want to support family members or charities while also taking advantage of gift tax exclusions.
For example, if an individual gifts stock worth $10,000, which they originally purchased for $5,000, the recipient will not owe capital gains tax until they sell the stock. The donor may also benefit from a gift tax exclusion if the amount given falls under the annual exclusion limit set by the IRS.
Additionally, gifting stock can help in offsetting potential estate taxes, as the value of the gifted stock is removed from the donor’s estate. This strategy requires careful consideration of both the gift tax implications and the recipient’s future tax liabilities.
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