Tips to Pay Zero percent Capital Gains Tax
Long-term capital gains are taxable. One will get surprised to know that there a lot of folks who pay nothing on their capital gains. In fact, they would successfully find ways in which they could beat the tax obligations easily and feature along with those who fall into the zero tax brackets on the capital gains taxes. How they do this is a matter of concern? Well everyone would like to know the legitimate ways if any for avoiding the capital-gains tax so as to increase their savings.
Basics of Capital gains tax 101
When you sell an asset which is a security or a property, you are set to gain profits. This is because their value increases with time. The Federal too understands the process and hence taxes these gains in the name of capital gains tax. This tax is a factor of the kind of asset you sell and also the on the period of time you successfully hold it before selling.
Securities namely stocks or bonds held for a short term i.e. a year or less, attract taxes as per the general income tax rules and gains received on selling them is referred to short term gains.
Any security or property which remains with the individual for a period extending one year comes under the purview of the capital gains tax. These taxes are commensurate to the category of the income tax one falls into.
The holding period of the property as the name suggests begins from the date it is purchased till the date it remains with the buyer. So if an individual buys a property in the year 2013 and holds it with him till 2018, and sells it the holding period of the property is approx. 5 years and the gains will be taxed accordingly.
Calculations of Capital gains tax 101
As per the current Income tax rates, any individual whose earnings is to the tune of $35000 including the capital gains tax for the year or if the spouse is also earning , the total gains for the financial year along with the spouse comes to $70,000; they fall in the 10-15 percent tax bracket. Individuals in the 10-15% tax bracket are liable to pay zero percent as the capital gains tax.
However, those whose income is in the higher range are required to pay 15% as taxes on their capital gains. Most of the people are not aware of this feature and they still assume that they will have to pay capital gain taxes on any security or property income that they earn.
However these are the simple provisions under the law where the person does not need to pay any capital gains taxes. Here are some of the ways which can give relief from the capital gains taxes:
In a family if the any of the spouse is having a lower annual earning the asset could be transferred in their name before selling it off. Then by filing the income tax returns separately, one could fall in the 10-15% bracket thereby earning a savings as they will not have to pay the capital gains tax.
One can also transfer the property in the name of the non-earning child who is above 19-years of age and is a full time student. Since their earnings are zero, they would fall in 10-15% bracket depending on the value of the property sold and the earnings on the same.
Retirees with no income can fall under this category provided their taxable income is low.
Collectibles like the fine art and antiques and similar items which are highly valued are taxed at a rate of 28% and do not qualify for the Zero per cent tax gains.
There are many who are not aware of the facts related to the capital gains tax and just going through the income tax laws or contacting the financial advisor one can save a lot of money in the legitimate ways.
Everyone wants a secure future. Investors are investing huge amounts of assets for gains in future. However, all the gains attract some taxes as per the policies of the state and the Federal. One needs to be aware of them.
capital gains tax101