How to Reduce Your Capital Gains Taxes

Capital gains are distinct from income. This is income earned from the sale of assets, stocks or investments. If your primary income is from capital gains, making several payments to the IRS a year may be a good idea. In other words, it may be beneficial to follow similar practices as those who are self-employed year round.

Do Not Sell for 1 Year

Hold your investments for at least one year. Once an investment hits the one-year mark, it is seen as a long-term investment. This reduces the tax percentage you would pay, thus reducing the overall tax burden.

Sell During Financial Difficulty

Your overall income plays a role in the amount of long-term capital gains tax that you pay. Those in the 35-percent and below brackets pay 15-percent capital gains tax. Higher tax brackets pay 20-percent. Selling when you are low on income or experiencing a major financial loss like retirement, will allow you to lessen the amount of tax owed.

Leave Investments to Family

Never sell your investments and leave them to a family member in your will. If the family member sells the investment, taxes will not be due on the previous years’ gains reports or the gains from the date you purchased the investment.

There are over one dozen ways to avoid paying capital gains taxes altogether. It requires meticulous record keeping, moving a lot and making the right financial decisions. The assistance of a financial advisor can help you keep your capital gains taxes to a minimum.

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