Happy 4th! Today, I want to get super practical about how using some gifting strategies could potentially save you money on taxes:
1. Gift shares, don’t sell them
The 2026 annual gift tax exclusion is $19,000 per recipient (the most you can give any one person per year without touching your lifetime estate/gift exemption)
Bob wanted to give $19,000 each to his 3 kids ($57,000 total). His original plan was to sell shares from his $1M brokerage account and gift the cash, but that’s super tax inefficient.
Bob is in the 15% long-term capital gains bracket (income over $100k). With a 10% cost basis (he’s been holding his shares for quite some time), selling $57,000 of stock would result in $51,300 of gains (~$7,000 federal tax bill + state tax likely)
A potential strategy is to gift the shares directly instead of selling. The kids receive carryover basis and the original acquisition date, so the tax bill shifts to them. However, Bob’s kids aren’t dependents of his. They are on their own, earning income, but are early in there careers, with modest salaries.
Below $49,450 of taxable income (single filer, 2026), long-term capital gains are taxed at 0%.
Say one of his adult children earns $45,000 in wages and receives $19,000 of stock with a $1,900 basis (a $17,100 gain)
Gross income: $62,100. After the $16,100 standard deduction, taxable income is $46,000 (under the $49,450 threshold). Federal tax on the gain is $0.
So, gifting stock instead of selling saved $7k in total.
Some things to watch for:
- Income-based credits. The EITC and Saver’s Credit phase out as income rises
- Dependents DON’T qualify. If the kids are still your dependents, kiddie tax rules apply (their capital gains could be taxed at your rate, not theirs)
2. Superfunding
You can front load 5 years of gift-tax-free 529 contributions at once. This “superfunding” election lets you contribute up to $95,000 in a single year (5 x the $19,000 annual exclusion) without touching your gift or estate tax exemption, by treating the contribution as spread evenly over 5 years.
For example, 2 wealthy grandparents, 5 grandchildren. Each grandparent superfunds $95,000 per grandchild ($190,000 per grandchild, or $950,000 total), pulling nearly $1 million out of their taxable estate at once instead of trickling it in over 5 years.
If the estate is large enough to owe federal estate tax, every dollar removed avoids up to 40% in tax, on $1M removed, that’s up to $400,000 saved. The federal exemption is $15M per person, $30M for a married couple, so this mainly matters for larger estates. Contributing earlier also gives the funds more years to grow tax-free before college.
Something to keep in mind is that superfunding requires filing Form 709 to make the 5-year election, and depending on your state, you may lose out on state tax deductions you’d have gotten by spreading contributions across 5 separate years instead.
I hope you learned something new, and have a safe July 4th!