Gifting Stock and the Tax Considerations

Summary of Gifting Stock and the Tax Considerations

by DIY Money

16m•May 13, 2026
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Overview of Gifting Stock and the Tax Considerations

This episode of DIY Money answers a listener question about using custodial brokerage accounts to gift stock to nieces and nephews, and how the kiddie tax affects the taxes on dividends, interest, and capital gains. The hosts also share why gifting actual investments can be a powerful way to teach kids about ownership, long-term investing, and the stock market.

Key Discussion Points

Why gift stock instead of just cash?

  • The hosts strongly support gifting stock early because it can:
    • Spark interest in investing
    • Create a long-term ownership mindset
    • Help kids connect with companies they know and use
  • One host shared how receiving McDonald’s stock as a child changed his perspective on investing and eventually influenced his career path.
  • They encourage making the gift feel meaningful:
    • Tell the child they own part of a company
    • Show them price changes over time
    • Talk about what the business does

Custodial brokerage accounts vs. 529 plans

  • Custodial brokerage accounts offer more flexibility than 529 plans.
  • Benefits of custodial accounts:
    • Can be used for anything later in life
    • Potential future uses include:
      • Buying a house
      • Starting a business
      • Buying a car
      • Other major life expenses
  • 529 plans are still great, but they are primarily for education-related expenses.

Kiddie Tax Rules and Filing

The basic tax thresholds discussed

The hosts explained the kiddie tax structure as follows:

  • First $1,350 of a child’s unearned income:
    • No tax
    • No filing needed
  • $1,351 to $2,700:
    • Taxed at the child’s rate
    • Typically still 0% in this range
  • Over $2,700:
    • Excess is taxed at the parent’s highest tax bracket

What counts as income?

They emphasized that this includes:

  • Interest
  • Dividends
  • Capital gains

So if a child has a savings account, a dividend-paying stock, or you sell appreciated shares, all of that has to be counted together.

Who files the taxes?

  • Under the threshold, there is usually nothing to report
  • In the middle range, the income may be reported on the child’s return/under the parent or guardian’s filing
  • Once the income exceeds the limit, it can end up on the parent’s tax return

Important caveat

  • They reminded listeners that they are not CPAs
  • For actual filing questions, families should confirm the rules with a tax professional

Tax-Efficient Gifting Strategy

Harvest gains over time

One host shared a strategy he wishes he had used more consistently:

  • Each year, sell appreciated investments inside the child’s account
  • Realize gains up to the kiddie tax limit
  • Reinvest into a different fund or stock
  • This effectively raises the cost basis over time

Why this matters

If done consistently, the account can grow into a position where:

  • The current value and tax basis are much closer
  • Future withdrawals or sales may create little or no taxable gain
  • The child can potentially use the money later without a big tax hit

Practical Advice for Gifting to Nieces and Nephews

Make the gift intentional

The hosts suggested that grandparents, aunts, and uncles:

  • Give a small stock gift instead of, or alongside, traditional gifts
  • Consider combining a small toy/tchotchke with money invested in the child’s name
  • Talk to the kids about what the investment is doing over time

Keep the long-term lesson in mind

The bigger goal is not just tax efficiency:

  • It’s helping the child develop financial literacy
  • It’s creating a tangible connection to ownership and investing
  • It may even shape future career or money decisions

Show Updates and Housekeeping

  • The show is approaching its 1,000th episode
  • Listeners are encouraged to submit questions for a chance to win $1,000
  • The hosts also promoted:
    • Their searchable episode archive on the website
    • The podcast’s Instagram presence
    • Their growing YouTube content

Bottom Line

The episode’s core message: custodial stock gifts can be a smart, educational way to build wealth for kids, but you need to understand the kiddie tax rules. With careful planning, families can use annual tax thresholds to reduce or eliminate taxes while gradually increasing cost basis over time.