Wall Street Journal Tax Report: The New Capital-Gains Maze, by Laura Saunders:
Chances are your capital-gains taxes are going up this year—and if you
aren't careful, you could end up paying more than necessary. …Under the old system, there were often only two rates: zero and 15%,
depending on your income. Now, there are three tax tiers: zero, 15% and
20%.And that isn't all. There also are three backdoor tax increases that can push your effective rate even higher—to nearly 25%.
Experts say many taxpayers whose rate still is 15% could well owe
one-third more than they would have last year. And many top-bracket
taxpayers will owe nearly two-thirds more, even if their income is that
high only because of a once-in-a-lifetime sale….Fortunately for investors, there still are ways to minimize the hit—and
even dodge it. Strategies include carefully timing investment sales,
making charitable donations and family gifts with assets instead of
cash, and minimizing certain income. With markets approaching record
highs, investors need to know them. …Here is what to do to minimize your gains pain this year.
- Lower your adjusted gross income. …
- Take advantage of "air pockets." The tax code stacks income, deductions and net long-term gains in a way that shrewd taxpayers can exploit.
Here's an example: A retired couple has $70,000 of adjusted gross income before capital gains and $30,000 of itemized deductions. (They might also have tax-free income from munis and Roth IRAs.) According to tax rules, the deductions reduce their income to about $40,000.
This leaves them with an "air pocket" of about $33,000 before they cross from the zero rate to the 15% rate on long-term gains. …- Give appreciated assets to charity. …
- Strategize family gifts. …
- Hold on for dear life. …
- Consider installment sales. …
- Remember the home exemption. …
- Beware of lower limits for trusts. …
- Don't be driven by taxes. …
