Hey guys!
Thought I would share a tip that I learned in Federal Income Tax Law this past year (Law Student). Only applies to LONG TERM CAPITAL GAINS. Held for over 1 year.
As many of you may know, capital gains tax sucks. Here is something a lot of people do not know: If you make under $37,450 single or $74,900 married (Taxable income), you do not pay capital gains taxes. 0%. That's right.
I recommend utilizing the heck out of this and doing some "Capital Gains Harvesting" with your appreciated stock if you can.
Example: You are a married couple with a taxable income of 50k. You bought some stock years ago for 1k that has increased in value to 11k. You should sell that stock, creating 10k in income that should be subject to capital gains tax, and then rebuy the stock in a couple of days. Your income is under $74,900, so those 10k in gains you just realized are TAX FREE. This saved you approximately $1,500 if you would have had to pay taxes on them in the future. (10k x 15% = $1,500). Your basis in the stock is now 11k instead of 1k, meaning in the future you only have to pay taxes on the gain from 11k+. This is especially useful for people who know they are going to make more money in the future than they have now.
This is also an excellent way to change from individual stocks that have done well to index funds without incurring taxable gains.
Note: This is in regard to Federal Income Tax only. Different States have different Capital Gains Income Tax rates and rules.
Here is an article about it from Boggleheads wiki: http://ift.tt/1JwXHb7
Submitted June 09, 2017 at 12:25PM by kawattslaw http://ift.tt/2s5b4ll
