When foraying into the world of investments, it can be easy to get caught up in the nitty-gritty of managing your investments while letting any tax consequences slip your mind, especially when it comes to capital gains tax. But it’s no less crucial to figure taxes into your overall strategy to get the most out of your investments. Miser Wealth Partners are experts on capital gains tax and helping our clients employ effective ways to minimize it.
What is capital gains tax?
Just as the case with your income, the government also expects a cut of any profits from your investments. These profits are referred to as a “capital gain,” and the government’s cut is the capital gains tax. There are typically two types of capital gains – unrealized gains and realized gains. Realized gains occur through an actual sale, while unrealized gains refer to a potential profit that exists on paper, such as an increase in the value of an asset or investment that hasn’t yet sold.
What type of assets are subject to capital gains tax?
Capital gains tax applies to what are known as capital assets, which include:
- Real estate, such as your home or investment property
- Digital assets
- Gems and jewelry
- Gold, silver, and other precious metals
- Household furnishings
- And other assets
How can capital gain taxes be mitigated?
Miser Wealth Partners can guide you on employing several strategies to mitigate or even eliminate your capital gains taxes. Some of the more common strategies include:
- Investing in a tax-sheltered account, such as an IRA or 401(k). The money you invest in these accounts or similar retirement plans is not subject to capital gains taxes after you retire.
- Claiming your losses through tax loss harvesting. Investors can deduct investment losses from their profits every year up to a certain amount. If you’ve purchased an investment that’s losing money, you can potentially sell it before the end of the year to minimize your tax bill.
- Use charitable contributions to offset your capital gains taxes. By donating highly appreciated stocks and other assets to a qualified charity, you can minimize capital gains tax and deduct the fair market value of what you donated from your income taxes.
- Reinvesting the gains from the sale of an asset into a new investment can help defer capital gains taxes.
- Try to wait more than a year before selling. If you sell your investment before one year is up, the capital gain is counted as regular income and taxed at a higher rate.
- Wait until you retire to sell your profitable investments. Those expecting lower income in retirement can lower their capital gains tax rate. If that rate is low enough, capital gains taxes may not be required at all.
Working with a professional tax advisor, such as the experienced team at Miser Wealth Partners, can help you take full advantage of these and other strategies to legally and effectively reduce your capital gains taxes.
How can I mitigate my capital gains taxes in East Tennessee?
Allow Miser Wealth Partners to enact the best strategy for you and help you maximize your tax advantage. Call us at (865) 281-1616 or click here to schedule a meeting with us. We’ll thoroughly evaluate your individual situation and work with you to create a plan that offers the greatest tax benefit.