Capital Gains Tax and Planning Opportunities

Capital Gains are taxed at various rates depending on the other items on your tax return.  Currently, the effective tax on capital gains range from zero percent to 44.1 percent.  The rate for you depends on the other income and deductions you report on your tax return.  If you are able to determine when you recognize or not recognize other income and deductions, you may be able to reduce the effective tax on your Capital Gains.
Now you may have thought that Capital Gains are taxed at 15 percent, however, other parts of the tax laws cause the effective rate to be either higher or lower.
The higher effective tax rates are because of the amount of your combined capital gain and other income, the type of asset sold, alternative minimum tax, Medicare surtax and state taxes.
There are planning opportunities to reduce your effective rate if you take action early enough in the year.  Some of these include deciding when to take IRA and pension distributions, either to contribute to traditional or Roth (IRAs, 401Ks, Pensions, etc.), shifting income from one year to the next, shifting itemized deductions from one year to the next, selling other assets at a loss (and then buying them back after a 30 day waiting period, if appropriate), purchasing business assets subject to depreciation, and making elections to depreciate business assets at an optimal amount for the year the capital gains are recognized.  There are many other possible strategies to minimize the effective tax on Capital Gains.  Since every situation is different a smart move is to discuss your options with a tax planner.  Not all tax preparers are tax planners.  Make sure you seek the advice of a qualified tax planner.
Jerald Schneider is a Certified Public Accountant providing tax, accounting and financial advice for more than 30 years.  He can be reached at 661-297-1072 or by e-mail at jerald@jeraldschneider.com.