The biggest misconception about capital gains is that this issue is exclusively reserved for wealthy people. People who sell and buy assets must pay many different taxes like property tax, excise tax, sales tax, etc. Selling capital assets like real estate, collectibles and jewelry mean you must also pay the capital gain tax. Depending on the cost basis, this tax can be considerable. The technicalities involved in the process can also be burdensome. In other words, everything we own has a potential tax liability.
A capital gain tax happens when the price you receive from selling an asset is higher than the price you paid for it (I.E. the cost basis). The price of upgrading the asset has the potential to increase the basis. Conversely, depreciating the asset will also cause a reduction of the cost basis.
The profits you make from selling an asset are not always what they seem. Uncle Sam wants his part. Some transactions can have capital gains as high as 37% or as little as 0%; obviously, this has a material effect on your returns. Worse yet, many states have their own capital gain taxes. There are ways to defer and adapt to capital gains taxes. Make sure you work with a financial planner, CPA, and/or tax attorney who will work to reduce your loss exposure. A penny saved is a penny earned.
Capital Gains Tax Reduction Strategies in Orange County
Give it Time
Selling an asset that you’ve held for less than a year will trigger a short-term capital gain of as much as 37%. Apparently, the government frowns upon making money quickly. Holding an asset for longer than a year lowers the maximum capital tax gain to 20%. Holding on a couple extra weeks can be the difference between making a profit and taking a loss.
Leverage IRS Regulations
The IRS allows certain kinds of exceptions. For instance, an individual may exclude up to $250,000 of gains on the sale of their primary residence. Couples can excluded $500,000.
The use of a ROTH IRA allows you to eliminate taxation of capital gains. A traditional IRA, 401k, etc. will allow you to defer capital gains.
However, the real challenge comes with assets outside of your personal residence and qualified accounts. First and foremost, TRACK YOUR COST BASIS. Keep detailed notes on upgrades, repairs, and money put into investments. This helps to minimize the effect of gains. On that note, are you valuing your intangible assets? Just because you can’t touch something doesn’t mean it doesn’t have a cost basis. Do you own patents, have copyrights, client lists, or similar types of assets that aren’t tangible? Many business owners fail to value their intangible assets before they sell their company. This means they paid unnecessary taxes. Be aware though, you need to value these assets BEFORE agreeing to a sale.
Additionally, certain trust structures allow you to defer federal capital gains, state capital gains, or both. More specifically, if you live in a state (California, New York) that has high capital gain rates, a little planning can go a long way.
Finally, if you own real estate a 1031 exchange will allow you to defer tax on the real estate you own and potentially stretch out depreciation.
Charting The Best Time to Sell
How do you choose the best time to sell or the right asset to sell? A capital gain strategist and analysis are part of identifying the right time, asset, and strategy for a sale. Don’t make the mistake of waiting for the last second. Contact us to book a personalized consultation. We’ll discuss our approach to managing capital gains and how to defer paying taxes on capital gains as well as strategies to protect your income from taxes.
Disclosure: The opinions expressed in this article are not intended to be an investment 8/2/2022 recommendation or tax advice and does not constitute a solicitation to buy, sell or hold a security or an investment strategy. Standing Oak Advisors and Centaurus Financial, Inc. do not offer tax or legal advice. The views and opinions expressed are for X and body. information and educational purposes only.
Investment Advisory Services offered through Newport Wealth Advisors, (NWA) a CA Registered Investment Advisor. Securities offered through Centaurus Financial, Inc. a registered broker/dealer and a member FINRA and SIPC. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in CA. Centaurus Financial Inc., Newport Wealth Advisors Inc., and Standing Oak Advisors are not affiliated companies.capital gains tax reduction strategies Orange County