A Beginners Guide To Experts

Reducing Your Capital Gains Tax

On top of paying income tax and payroll tax, people buying and selling personal and investment assets also need to deal with the capital gains tax system. Capital gain rates can be about as much as regular income taxes. The good news is there are ways to keep them as low as possible.

The following are useful tips that help you minimize your capital gains tax:

Wait a year (at least) before selling.

For capital gains to be qualified for long-term status (and less tax), wait a year before you sell the property. Depending on your tax rate, you may be able to save 10% to 20%. If you sell stock with a $2,000 capital gain, for instance, and you are in the 28% income tax bracket and have owned the stock for longer than a year, you need to pay 15% on the transaction. If you’ve held the stock for hardly 12 month, you’ll pay $560 or 28% of $2,000 in taxes on the transaction.

Sell when you’re earning low income.

Your income level affects the amount of long-term capital gains tax you are obliged to pay. Those within the 10% and 15% brackets need not even pay long-term capital gains tax at all. If your income level is about to drop – let’s say your spouse is almost retiring or you’re about to lose your job – selling during this low income year will decrease your capital gains tax rate.

Lower your taxable income.

Since your capital gain tax rate relies on your taxable income, general tax-savings techniques can help you get a good rate. Increase your deductions, for instance, by giving to charity, getting pricey medical procedures before the year closes, or increasing your traditional IRA or 401k contributions.

Look as well for not-so-known deductions, like the moving expense deduction, which is for those who need to move for employment. Rather than buying corporate bonds, get bonds issued by municipalities, local governments and states, as the income they produce is non-taxable. There’s an entire range of possible tax breaks, so study the IRS’s Credits & Deductions database so you know what you can qualify for.

Time your capital losses with your capital gains if possible.

One remarkable feature of capital gains is that they’re moderated by any capital losses incurred on a particular year. To lower your tax, use up your capital losses in the years you have capital gains. There’s no restriction on how much in capital gains you should report, but you can only take $3,000 of net capital losses for every tax year. You can, however, carry extra capital losses into future tax years, but if you’ve had a particularly substantial loss, it may take a while for you to use those up.

Quotes: go