Lower Capital Gains Tax

Three Ways to Reduce or Defer Capital Gains Taxes

Capital gains are a real pain in the taxes! While capital gains are taxed differently than income, the rate at which they’re taxed ranges from 0% all the way up to 37%, depending on your personal tax situation.  

It’s so exciting when you turn a big profit on an investment, but knowing that the government is going to take a significant portion of your earnings is sure to feel like highway robbery.

It’s not all doom and gloom, my friends! Here’s a few ways that you can minimize the capital gains taxes paid to the government, legally and ethically.

  1. Losses Offset Gains

Sell losing investments, and you can reduce the amount of your gains by that loss. If your loss is more than your gains, you can deduct up to $3,000 against the year’s ordinary income, plus you’ll be able to carry any additional loss over to next year.

2. Invest in Your Future

When you invest capital gains in your 401(k) or IRA, taxes are deferred until the money is withdrawn – then it’s taxed as ordinary income.

Short-term, you’ll want to consider maxing out your Health Savings Account (HSA) to save money. Expand those savings by using the investment option to save for retirement healthcare costs – the money goes in pre-tax, grows tax-free, and will be withdrawn free of taxation

3. Provide for the Next Generation

Your children are also your future, and depositing capital gains into a 529 college savings plan allows your money to grow tax-free, and you won’t pay taxes when you withdraw it for educational expenses.

Another option is giving the gift of tax savings. Right now, the annual gift tax exclusion is $15,000 per individual. So, if you gift that appreciated stock to your child who is in a lower tax bracket, your low basis transfers, but the capital gains tax rate could be as low as 0% for your son or daughter.

Most importantly, how you identify and report the sale of your investment to the IRS will determine how much is owed in taxes. It’s up to you to report capital gains when you file your taxes, but an experienced tax professional can help you evaluate your income tax liability and estimate capital gains taxes.

Download my free e-book, 5 Tax Mistakes That Cost You Thousands, to learn about the most lucrative (but overlooked) tax strategy available!

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