How to Give Digital Assets As a Gift

Our tastes change as we get older. And that extends to the gifts we receive. A stuffed animal may be a prized possession for a toddler, whereas older kids tend to enjoy sports equipment. The latest electronic device may be a welcome present for teens and adults. Physical gifts have varying degrees of staying power and often become obsolete or worn out. But if you want to make a lasting impact on the recipient, consider giving a digital asset as a gift and an investment.

Digital assets can be traditional investments (think stocks and bonds) to newer alternatives like cryptocurrency and non-fungible tokens (NFTs). They're a unique financial gift because they have the potential to appreciate even if their value may be volatile over the holding period. In this case, digital assets may benefit the recipient's financial situation in the future.

What’s more, because we’re talking about items that you purchase and hold in online accounts, the process of giving a digital asset as a gift is generally quick and easy. Depending on the asset, you will often be able to transfer your gift directly from your account to that of your recipient. Here are a few tips on how to give the gift of digital assets to your loved ones.

Why Digital Assets Make a Good Gift

Why would you give anyone a digital asset as a gift? This kind of gift may be ideal for someone in your life who is in the early stages of their journey with investing and personal finance. The gift of a digital asset could be a great way to introduce younger people to the value of investing for the future.

As they learn the ins and outs of investing and become experienced investors, the recipient becomes the owner of an asset whose value may grow over time. So, although it may not generate the same immediate excitement as, say, the latest video game console, a digital asset can provide extended benefits throughout the recipient’s financial life.

Giving the gift of a digital asset also means that you can forget about things like wrapping paper and shipping costs. In fact, you can generally give your gift through a fast and simple online transaction. Rapid and painless, digital assets make great last-minute gifts.

Tax Implications of Gifting Digital Assets

Whether you intend to contribute to your recipient’s financial future or you want a useful gift that's easily transferrable, there are some things you should keep in mind before you give digital assets as a gift. Like any other financial decision, gifts may have some financial repercussions on Tax Day. It’s important to consider the tax implications—for you and for your recipient.

Gift Tax

The first tax issue to keep an eye on is that if you give somebody a gift worth more than a limit set by the Internal Revenue Service (IRS), you will be on the hook for paying the gift tax.

Gifts are subject to this tax only if their value exceeds a certain limit. This limit is $17,000 in 2023, which is up from $16,000 in 2022. The value doubles if you're giving the gift as a married couple. Keep in mind that this limit is per recipient, so you can give a gift to two people worth up to $17,000 each.

If you give someone a gift that exceeds the gift tax limit, you will need to report it to the IRS using Form 709.

Annual Exclusion

Not only are you limited to how much you can gift each year, but there's also an annual exclusion. This is the amount of money you can gift during your lifetime without incurring a gift tax.

Like the gift tax, this amount is adjusted for inflation each year. For 2023, the lifetime gift tax exclusion is $12.92 million, which is an increase from the $12.06 million set for 2022. If you have given gifts worth more than this amount over the course of your life, you will be responsible for paying the federal gift tax.

These annual and lifetime limits provide you some wiggle room to give many types of digital assets as a gift—even a rather generous one—before you need to worry about triggering gift taxes.

Income Taxes

Regardless of whether your gift is subject to gift taxes, the recipient is not responsible for any income taxes on the amount they receive. However, when you give somebody a digital asset as a gift, it does come with a tax-related catch.

The gift recipient will be responsible for paying capital gains taxes whenever they sell the asset. The recipient takes over ownership of the gifted asset with the same cost basis. In other words, the recipient’s capital gains are calculated based on what you originally paid for the asset.

If the digital asset is worth more than when you bought it, the cost basis remains the same when your recipient takes ownership of the asset. This means you essentially pass on that capital gains tax liability along with the gift. Therefore, if you’re going to give this type of gift, you should be sure the recipient understands that some strings are attached.

Types of Digital Assets to Give as a Gift

If you’ve decided to give a gift with the power to enhance someone’s financial future, the next step is to determine the best type of digital asset to transfer to your recipient.

There are many factors to consider, including tax considerations, the makeup of your own investment portfolio, and the financial goals of your recipient. Let’s look at some of the common asset classes that may be suitable to give as digital gifts.

Stocks

Stocks are an interesting gift idea. Not only do they come with a potential financial benefit, but shares of a company can be gifted that match your recipient’s hobbies, interests, or values.

It isn't difficult to gift a gift of stock. In fact, you can easily:

• Transfer shares from your brokerage account to your recipient’s
• Use an online app specializing in stock gifting
• Even gift shares directly through the company

Keep in mind that anyone who receives stock will need to have their own brokerage account. If everything goes as planned and the stock's value increases, the recipients will owe capital gains taxes when they decide to sell the shares.

Bonds

Bonds are debt issues. So your recipient becomes a creditor or lender to the issuing corporation or government when you give them a bond. On a more practical level, the gift of a fixed-income investment can teach recipients about managing money as you provide them with a nice boost to their financial future.

The best thing about bonds is that there's no shortage of options. Corporate bonds generally require a steep minimum investment, which is why many gift-givers turn to U.S. savings bonds. Because they are backed by the U.S. Treasury, savings bonds are a trustworthy investment, making them a less risky financial gift than, say, NFTs.

In the case of gifting savings bonds, the digital transaction is also fairly simple—you can buy a savings bond for as little as $25 from the TreasuryDirect website and then transfer the asset to the recipient’s TreasuryDirect account.

Exchange-Traded Funds (ETFs)

An exchange-traded fund (ETF) is a pooled security, which is made up of a basket of different investments. This can be a great alternative to stocks and bonds, which give the recipient a stake in just one issuer. When you give an ETF as a gift, your recipient gains exposure to a defined slice of the financial markets.

Given the wide variety of ETFs that are available, you should be able to find a fund that can help your loved one achieve any financial goal. Just like stocks, ETF shares can be transferred from your brokerage account, using an online gifting platform, or directly through certain ETF issuers.

Gold or Silver

Gold and silver may not immediately come to mind when you think of digital assets, but precious metals can be a great way to store value and provide benefits when the economy is unstable. If you want to give a digital gift of gold or silver, you may want to consider ETFs or shares in mining companies that stand to benefit from rising precious metals prices.

But you may find the idea of physical gold or silver as a gift more attractive. In that case, you can give bullion, coins, or jewelry. Even though those are tangible assets, you can shop online for gold and silver gifts from licensed retailers. If you plan to gift physical gold or silver, it's important to remember that there are costs associated with delivery, storage, and insurance.

Cryptocurrency

By now, you’ve almost certainly heard stories about cryptocurrencies and their tumultuous volatility. While the debate rages on about the long-term viability of cryptocurrency, the asset class remains a speculative investment and a way of making certain digital payments. If you’re comfortable with high levels of risk, the ubiquity of these digital assets makes them increasingly easier to buy and gift to someone else.

You can buy assets through a cryptocurrency exchange and then transfer them to your recipient's wallet. Some sites offer cryptocurrency gift cards that your recipient can then redeem. The new cryptocurrency owner will need a way to store the keys to the digital gift—the safest of which is keeping the asset offline, where it is less vulnerable to hacking and theft.

Non-Fungible Tokens (NFTs)

An NFT is essentially an online digital file made available for exclusive ownership. Like cryptocurrency, NFTs are highly volatile and speculative investments, with a value that is based exclusively on what another buyer might be willing to pay for it. If you can tolerate the risk, NFTs could make an appealing gift because they are unique collectibles.

The general process of gifting an NFT involves buying the asset from a marketplace, then transferring it to the recipient’s NFT wallet. The specifics may differ based on the NFT marketplace you use, which, in turn, vary based on their processes and the types of NFTs that they offer.

Most marketplaces accept payments only via Ethereum, so you will likely need to have access to that blockchain platform to buy your NFT gift.

Donor-Advised Fund (DAF)

While giving financial assets as a direct gift can help set up your recipient for potential future financial success, a donor-advised fund (DAF) allows you to give the gift of giving. A DAF is a third-party entity that manages charitable donations on behalf of individuals, families, and other organizations.

Contributing to a DAF offers significant tax advantages. In addition, giving a DAF as a gift could be a way to introduce somebody in your life to the importance of charitable giving.

Life Insurance

It tends to be a difficult topic to discuss and may not occur to you as a gift idea, but life insurance can be a critical tool for maintaining financial security in a worst-case scenario. People generally buy their own life insurance policies, but you may be able to give life insurance as a gift.

There are a few ways to go about this:

• Designate the gift recipient as the owner or beneficiary of an existing life insurance policy, or
• Establish a new policy for them

You will need to demonstrate an insurable interest, and the person covered by the policy will likely need to appear for a medical exam and provide additional information. Either the gift giver or the recipient will need to pay the premiums so that the life insurance policy remains active.

Individual Retirement Account (IRA) Contribution

Contributing to an individual retirement account (IRA) has become the cornerstone of many people’s retirement plans. Contributing to another person’s IRA as a gift could go a long way to help them kick-start or catch up on their retirement savings.

This is particularly true if you give the gift of an IRA contribution to younger people, as they will benefit from the longer time remaining until retirement and enjoy a more extended period of tax-advantaged investing.

However, there are certain restrictions to keep in mind if you plan to contribute to another person’s IRA. The same earned income requirements apply to the gift recipients as if they had made their own IRA contributions, and IRA gifts are subject to the standard annual contribution limits.

529 Plan Contribution

If your gift recipient is young and their retirement is far in the future, contributing to a 529 plan may help them secure tax advantages while providing funding for a more immediate life stage: their education.

If your recipient does not yet have a 529 plan account, you can open one on their behalf or you can contribute your gift to an existing account. The recipient can withdraw from the account tax-free, provided they use the funds for qualified educational expenses.

A special rule in the tax code allows you to contribute a lump sum of up to five times the annual gift tax exclusion to a 529 plan and spread it over five years.

Credit Card Rewards Points or Miles

Are you looking for a present for an avid traveler? One digital asset that you could consider giving as a gift is your credit card rewards points or miles.

With most types of credit cards, it’s not possible to transfer your rewards or miles directly to somebody else. Iinstead, you can redeem the points for frequent flyer miles and then transfer those to your gift recipient.

You also may be able to use your points to buy gift cards or other merchandise that you can give as a gift.

The Bottom Line

You have myriad options when shopping for a gift, but many of the presents you can give last only for a limited time. Digital assets are one type of gift with the potential to gain value and contribute to the recipient’s long-term financial well-being. The ability to buy and transfer investments quickly online also makes it easier than ever to give the gift of a digital asset.