Throughout a lifetime, a person’s taste in gifts evolves. A toddler’s favorite is probably a stuffed animal, while a preteens is perhaps sports gear. The recipient could be anyone, from a teenager to an adult who enjoys playing with the newest gadget. These material presents have a limited shelf life and usually stop being useful or look nice after a couple of years. On the other hand, if you want a gift guide that has a more permanent effect on the recipient’s life, a digital asset could be a good investment.
Gifts of digital assets, whether conventional investments like stocks and bonds or more innovative ones like cryptocurrency and non-fungible tokens (NFTs) are unlike any other kind of financial present because of their potential for growth over time. Digital assets are among the few gifts likely to benefit the recipient’s future economic life, making them as close as you’ll get to the proverbial gift that keeps on giving as you can.
For this gift guide, since these are things you buy and store in digital accounts, giving one as a present is typically quick and easy. Depending on the asset type, you may be able to transfer funds to the recipient instantly.
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Here’s Why Some Digital Assets Make a Great Gift
You could consider giving a digital asset as a gift for various reasons. If you know someone just starting out in the world of investing and personal finance, this could be the perfect gift for them. Giving a young person a digital asset as a present may be an excellent gift guide to teach them the importance of saving and investing.
You can give someone a digital gift that has the potential to grow in value as they learn the ropes of the investment world. Even though a digital asset may not be as exciting as the newest video game console, it can still benefit the recipient financially for a long time to come.
If you’re planning on surprising someone with a digital asset, you won’t have to worry about the hassle of buying wrapping paper or paying for shipping. As a rule, this gift guide can be delivered via a quick and easy online transaction. Because of how easily and quickly they can be transferred online, digital assets are an excellent choice for last-minute presents.
Giving Digital Assets as a Gift and the Tax Implications
There are a few things to keep in mind before using this gift guide for giving digital assets as a gift, whether you are doing so as part of a well-thought-out plan to help the recipient’s financial future or you are just looking for a practical and easily transferable present. In the same way that any other financial choice could impact your tax bill, gifting assets could also. The tax consequences of your gift, both to yourself and the recipient, should not be overlooked.
The gift tax is the first concern; if you give someone a gift worth more than the IRS threshold, you must pay it. In the tax year of 2022, however, this tax will only apply to gifts with a value of more than $16,000, or $32,000, if the givers are a married couple. The IRS requires you to file Form 709 if you give someone a gift that is more than the allowable amount without paying gift tax.
There’s a lifetime gift tax exclusion and an annual gift tax exemption. This lifelong maximum is capped at $12.06 million for the year 2022. Throughout your lifetime, you may have given gifts that total more than this amount without incurring any federal gift tax liability. As a result of these annual and lifetime limits, you can make a sizable gift of digital assets without worrying about incurring gift taxes.
Whether or not your gift is taxable, the recipient is exempt from paying income taxes on the amount they receive. However, tax snafu is associated with gifting someone a digital asset. When it comes time to sell the investment, the gift recipient will be on the hook for any capital gains taxes. Once an asset is gifted, the recipient automatically becomes the owner and receives it at no additional cost. Thus, your gift recipient will be subject to capital gains taxes based on the price you paid for the asset.
It’s essential to remember that if the value of the digital asset you’re gifting has increased beyond what you paid for it, the recipient will inherit the same cost basis that you did. This means you will be responsible for paying capital gains tax on the appreciation. For this gift guide, the recipient should know that conditions are attached if you give this gift.
What Kinds of Digital Assets Make Good Presents
If you want to give someone a gift that will make a difference in their financial future, you’ll need to decide which digital asset is best suited for that purpose. There are a lot of variables to think about, such as the tax implications we discussed above, the composition of your investment portfolio, and the outcomes you hope to achieve for the recipient. Let’s look at common asset types that could work as digital gifts.
Stocks
For this gift guide, gift shareholdings in a company that reflects the recipient’s interests, values, or hobbies can be a thoughtful and potentially financially rewarding gesture. Shares of stock can be easily gifted by transferring them from your brokerage account to the recipient’s, using a dedicated stock gifting app on the web, or contacting the company itself.
For stock gifts to be received, the recipient must have access to a brokerage account. It’s important to remember that if the gifted stock appreciates as expected, the recipient will be responsible for paying capital gains taxes upon selling the shares.
Bonds
When you present someone with a bond, they formally join your ranks as a lender or creditor to the issuing company or government. More practically, giving someone a fixed-income investment as a present can help them learn about financial management while also giving them a leg up in the future. There is a wide variety of bonds to choose from if you’re looking for a present. Still, because corporate bonds usually have a high initial investment threshold, many people opt for U.S. savings bonds instead. The fact that the government backs U.S. savings bonds makes them a safe investment and a more secure present than non-fungible tokens.
Exchange-Traded Funds (ETFs)
An exchange-traded fund (ETF) is a type of pooled security that invests in a variety of different investments rather than just one, like stocks or bonds. Giving someone an exchange-traded fund (ETF) is a great way to help them get their feet wet in the financial markets, as it will provide them with access to a specific market segment. With so many Exchange Traded Funds to choose from, you can give someone the financial boost they need to reach any goal they may have. Gifting shares of an exchange-traded fund (ETF) is similar to providing shares of a publicly traded company.
Gold or Silver
Although gold and silver aren’t the first things that come to mind when discussing digital assets, they are, in fact, excellent investments that can be particularly useful in times of economic uncertainty due to their ability to serve as a store of value. Again, exchange-traded funds (ETFs) or shares in mining companies that benefit from rising precious metals prices could be good options if you want to give someone on your digital gift list exposure to gold or silver as an investment.
But you might be more interested in giving gold or silver as a physical token. Bullion, coins, or jewelry are all suitable options for such a present. Even though gold and silver are physical commodities, they are available online from authorized vendors. Gifting actual gold or silver requires you to account for its transportation, safekeeping, and possible insurance.
Cryptocurrency
You’ve probably heard at least a little about the wild price swings in cryptocurrency markets. Even though there is much discussion about whether or not cryptocurrencies have a sustainable future, they are still a popular means of making certain types of digital payments and speculative investments. Due to their increasing accessibility, these digital assets make excellent presents for those who can stomach a high degree of uncertainty.
You can use an exchange to purchase cryptocurrency assets and send them directly to the recipient’s wallet. Some websites even sell gift cards that can be redeemed for cryptocurrency. The recipient of the cryptocurrency as a gift will have to find a secure place to keep it, and the best option is offline storage, where it will be less susceptible to theft.
Non-Fungible Tokens (NFTs)
Non-fungible tokens (NFTs) are digital assets that can be owned solely by their owner and are stored in a decentralized manner on a network. NFTs, like cryptocurrencies, are extremely risky investments whose value is derived solely from the price at which someone else is willing to purchase them. NFTs are unique collectibles, so if you can stand the risk, they could be an excellent present for someone.
To give an NFT as a present, you must first purchase the asset in an NFT marketplace and then send it to the recipient’s NFT wallet. The particulars may vary from NFT market to NFT market due to differences in procedure and product offerings. To purchase your NFT present, however, you will most likely need access to the Ethereum blockchain platform, as this is the only one currently accepted by most marketplaces.
Donor-Advised Fund (DAF)
Giving someone money or other assets as a gift can set them up for future success, but this gift guide, a donor-advised fund (DAF), lets you give back to the charity of your choice. Donor-advised fund (DAF) administrators handle charitable contributions on behalf of donors such as individuals, families, and businesses. There are significant tax benefits to contributing to a DAF. Additionally, a donor-advised fund can be a great way to introduce someone to the value of charitable giving.
Life Insurance
Though it’s not an easy subject to broach and might not be the first thing that comes to mind when thinking of a gift, life insurance is an essential tool for ensuring financial stability in the face of adversity. Although most people purchase policies, life insurance can also be given as a gift. Several strategies exist: One option is to establish a new life insurance policy in the recipient’s name, while another is to name them as the owner or beneficiary of an existing policy.
You’ll need to provide proof of an insurable interest, and the policy’s insured will likely have to undergo a medical exam and supply additional documentation. To keep the life insurance policy in force, the donor or the beneficiary must keep up with the premium payments.
Individual Retirement Account (IRA) Contribution
Many people’s retirement strategies now revolve around making contributions to an individual retirement account (IRA). A gift contribution to an IRA can be a great way to get someone started saving for retirement or to help them catch up if they’ve fallen behind. When you give someone a tax-deductible IRA contribution, they’ll have more time to grow their money tax-free because they have longer to go before retirement.
However, if you want to contribute to someone else’s IRA, you should be aware of some limitations. A recipient of an IRA gift is subject to the exact earned income requirements as if they had made their contributions, and IRA gifts are also subject to the same annual contribution limits.
529 Plan Contribution
Donating to a 529 plan may be an excellent way to get tax breaks while still helping young people out with something they’ll need in the here and now: a college education if retirement is still a ways off. You can open a 529 plan account for the recipient if they don’t already have one, or you can add to an existing account they have. Funds taken out of the account to pay for qualified higher education costs are not subject to federal income taxation for the beneficiary. The annual gift tax exclusion is $15,000, but you can contribute up to $5,000,000 into a 529 plan in a single year under a special rule in the tax code.
Credit Card Rewards Points or Miles
Is the globetrotter in your life in need of a present? If you have rewards points or miles on a credit card, they could make an excellent digital asset to give as a present. Most credit card companies don’t allow you to give someone else their rewards or miles directly; instead, you have to convert them into frequent flyer miles and provide those to the lucky recipient. Additionally, you may be able to redeem your points for gift cards or other items that can be given as presents.
Frequently Asked Questions (FAQs) about Gift Guide
Is It Appropriate to Present a Digital Asset as a Gift?
Unlike most other items you could give, digital assets could increase in value over time, making them a potentially excellent present. Donating digital assets is a thoughtful way to help secure the recipient’s financial future. If you buy and store the asset(s) in question online, sending the gift to the intended recipient will likely be as simple as sending an email.
If Someone Were to Give You a Digital Asset as a Present, How Would You Go About Giving It to Them?
How you make your gift available to the recipient will be determined by the nature of the asset you’re giving. The brokerage firm you use may allow you to gift someone else with an existing security or one you purchase for that purpose. Gifting investment assets can also be processed through specialized online services.
Which Digital Asset Is the Most Valuable to a Child?
Some extra things to consider if you plan to give a child a financial asset. Gifts of digital assets to individuals under 18 are typically kept in a “custodial account,” managed by a parent, legal guardian, or other responsible adults on behalf of the minor. Investing in a child’s future early on can provide several benefits, including giving them a larger cushion of time to see their investments grow and fostering good money management practices. Contributions to a child’s 529 plan account, a tax-advantaged way to help fund their education, are a popular gift choice.
Many gifts available for purchase have a short shelf life and should be given only once. However, this gift guide introduces you to gifts of digital assets, which can increase in value over time, and may help the recipient financially in the long run. With the speed and convenience of online shopping and fund transfers, digital assets are an ideal present.
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Read more: Investing
Source: Investopedia