How To Help Reduce Capital Gains Tax

The capital gains tax can take a big bite out of your wealth, but it doesn’t have to be that way. Capital gains can actually be the least-taxed of all investment returns, since there are numerous ways to defer, reduce, and even eliminate them altogether. There is a way to sell your stocks without paying one penny in taxes, and it starts with holding shares of a company for over one year. Should you sell before the year passes, you’ll pay your normal tax rate on any gains. Here are those rates for 2016:

Income Thresholds

Tax Rate Single Filers Married Filing Jointly Or Qualifying Widow/Widower Married Filing Separately Head Of Household
10% Up to $9,275 Up to $18,550 Up to $9,275 Up to $13,250
15% $9,276-$27,650 $18,551-$75,300 $9,276-$37,650 $13,251-$50,400
25% $37,651-$91,150 $75,301-$151,900 $37,651-$75,950 $50,401-$130,150
28% $91,151-$190,150 $151,901-$231,450 $75,951-$115,725 $130,151-$210,800
33% $190,151-$413,350 $231,451-$413,350 $115,726-$206,675 $210,801-$413,350
35% $413,351-$415,050 $413,351-$466,950 $206,676-$233,475 $413,351-$441,000
39.6% $415,051 or more $466,951 or more $233,476 or more $441,001 or more

Any proceeds received from the sale of stock become part of your taxable income, possibly pushing you into a higher tax bracket. For example, let’s say you’re single and earned $91,150 prior to the sale of your stocks. Selling would bump you up a bracket, requiring you to pay 28% on your short-term capital gains.

By holding your stocks for over one year, you’ll qualify for the long-term capital gains tax rate. If you fall into one of the first two tax brackets, you won’t owe any capital gains taxes whatsoever. Here’s the long-term capital gains tax schedule:

Tax Bracket  Long-Term Capital Gains Tax
10% 0%
15% 0%
25% 15%
28% 15%
33% 15%
35% 15%
39.6% 20%

As you can see from this chart, it really pays to hold onto your investments for at least one year – in order to pay a much lower tax rate, and possibly avoid capital gains taxes altogether! At Werba Rubin, we’re committed to helping you achieve your goals by making the most of your financial resources, and that includes reducing the impact of capital gains taxes.

All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution.

The information herein is general in nature and should not be considered insurance, legal or tax advice.  Please consult with an insurance legal or tax professional for additional information on specific situations.    

Advisor services through Werba Rubin Advisory Services, LLC. Securities through Loring Ward Securities Inc., Member FINRA/SIPC# (04/10) © 2016Werba Rubin Advisory Services, LLC (WR 16-025)

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