How do I pay gift tax for stocks?

Question

I am going to give my mother some stocks. I knew that I can give her $12,000 per year without paying gift tax. I bought those stocks with $10,000 few years ago but currectly the market price for those stock is higher than $12,000. Let's say $15,000. Do I need to pay gift tax for it?

Answer 1

You need to file a gift tax return if the value when you give them to her is greater than $12,000.  You probably won't actually owe a gift tax though.

Answer 2

Let's say the day you give your mom the stock, the FMV is $15K.

Your gift is $15K, so you have to the gift tax form 709.  Your taxable gift is $3000 and the "gift tax" is $540 (assuming this is the first taxable gift you've ever made).  The IRS won't actually ask you to pay the $540, because you get a credit of $345,800 and haven't used it up yet.  (The $3000 reduces your estate exemption.)

Your mom's basis in the stock is $10,000 plus a tiny portion of the gift tax (the formula is in pub 551).  When she sells, she pays the capital gains tax that you didn't pay because you gave her the stock.