Sometimes Uncle Sam gets a bad rap. As a metaphor for the federal government, he’s frequently the target of wry jokes, complaints, and criticism.

Maybe the worst of it comes when the Internal Revenue Service (IRS) is involved, what with the rules, regulations and all those taxes. It’s a tough gig for a tough guy, but buried under all that red, white, and bureaucratic garb is a big heart with some soft spots.

Take capital gains taxes, for example. As investors, we take risks and buy stocks, and if we’re fortunate, the value grows far beyond our stock’s original price. We can either hold the stocks and possibly watch their value grow even more, or we can sell them, and reap the rewards. But those who sell will soon face Uncle Sam with his hand out, asking for his share – the capital gains tax payment.

Selling stocks can be necessary, especially when investment portfolios lose balance over time and need to be adjusted to protect against market volatility, forcing investors to sell, even if it results in extra tax liability.

But here’s where Uncle Sam’s soft heart shows through. Investors can solve their portfolio problems by gifting some or all of their problem stocks. They can give the stocks to children, grandchildren, close friends, or anyone they choose. By doing so, they can benefit their loved ones with a gift of great value, and under IRS rules, the capital gains tax liability goes to the gift recipient.

That can solve the investors’ tax problems, but what about the loved ones? If they decide to sell their gift, they may need to hold onto a percentage of the proceeds to pay the government what’s due.

But there may be a silver lining for the loved ones as well. Depending on their annual income, loved ones may not be required to pay capital gains taxes. Under the law, individual filers in 2023 do not have to pay capital gains taxes if their total taxable income is $44,626 or less. For married couples who are filing jointly, the taxable income threshold is $89,250 or less. And when qualifying charities receive stock gifts, they never have to pay capital gains taxes.

So, when it comes to capital gains taxes, Uncle Sam has a soft spot, after all.

Who knows what he’s thinking, but maybe he likes it when investors give shares to charities and when parents and grandparents pass equities down to children. Perhaps he supports investors who share some of their gains to support the common good, and maybe he thinks it’s a good idea to teach young people about the power of investing and the long-term benefits of compounding interest.

In light of all that, it looks like capital gains taxes really aren’t for everyone. That’s something to keep in mind next time we want to crack a joke, complain, or criticize. If we look deep enough, even Uncle Sam has a softer side.