Planning to sell your investment or rebalance your taxable portfolio anytime soon? You may finally qualify for 0% capital gains taxes for 2023! Investments are great! And with so much investments opportunities, it’s easy to get caught up and forget the tax consequences. It’s difficult enough to learn how to pick the right stock and mutual funds without losing it all in a market crash.
Capital Gains Tax For 2023
The IRS has increased the taxable income limit for the 0%, 15%, and 20% long-term capital gains bracket for 2023. Financial experts say that a higher taxable income and standard deductions threshold means you are more likely to fall into the 0% bracket in 2022. For 2023, the threshold for a 0% long–term capital gains rate with taxable income is $44,625 or less for single filers and %89,250 or less for married couples filing jointly. This means you may benefit from 0% capital gains taxes for 2023
Although the new 2023 threshold has been adjusted for inflation, a few special capital gains taxes aren’t adjusted for inflation. For instance, a 28% tax rate may apply to gain from the sale of qualified small business stock, and the sale of collectibles such as coins, gold, stamps, and other similar items. There’s also a special 25% rate that applies to the amount of depreciation previously taken on real property, this is called unrecaptured Section 12250 gain.
Understanding Capital Gains Taxes
Capital gains tax is the tax imposed on an investor’s profit from selling an asset. The tax is only imposed when the asset has been converted to cash, not when it is still an investment. So, for example, if you own a company shares in Nike, which increases in value every year, no capital gains taxes will be levied just because your shares appreciate. The only way capital gains tax will be imposed is when you decide to sell the shares for a price higher than you bought them.
The U.S federal tax policy applies the capital tax gains rate to only profits from the sale of assets held for more than a year, also known as long-term capital gains.
How To Legally Avoid Capital Gains Taxes
Paying a huge chunk of your profit as taxes can be heartbreaking, but you can’t keep doing that. Not to worry, here are a few excellent ways to pay as low as 0% capital gain taxes for 2023 when you sell an asset. Here are a few tricks to apply.
Offset Your Gains
Offsetting your gains is one of the best ways to achieve 0% capital gain taxes for 2023. If you have different assets, you can offset some of your gains with applicable losses you may have, allowing you to offset and cancel your capital tax gains for a particular year. Expert investors harvest their capital losses as they occur and then use them for current and future taxes.
For instance, if one of your investments is down by $2,000 and another is up by $4,000, selling both will significantly reduce your capital gains taxes. This is because you’ll only be paying capital gains taxes on the difference in the investment rather than the full $4,000 gains on the second investment.
Another way to use the offset strategy and get 0% capital gain taxes for 2023 is through tax-loss harvesting. This method allows you to carry over losses from one tax year to another to help offset your future gains. However, tax loss harvesting is only applicable if your losses in a given year exceed the total gain.
Choose Long-Term Investments.
Capital gains can either be long-term or short-term, and each type of investment has its own tax rates. Assets held for less than a year are short-term, and short-term gains are generally taxed at your ordinary tax rate, which can go as high as 37%, based on your total taxable income.
This is why long-term investment is preferred to avoid high capital gains taxes. When you hold an investment for a year or more, you’ll qualify for long-term capital gains tax rates, which may likely push you up to 0% capital gain taxes for 2023.
Contribute To Your Tax-Deferred Retirement Accounts
Investing long-term in retirement accounts gets you 0% capital gain taxes for 2023. More often than not, your retirement account makes up a huge part of your savings and future assets. Why not use them to reduce your capital tax gains? You can buy and sell stocks, bonds, and other assets you own without triggering capital gains taxes. Withdrawals from your 401(K), traditional IRA, and other retirement accounts
When you contribute to a tax-deferred retirement plan, you’ll receive a tax deduction on your contribution in the current tax year. This will help you save money on your income taxes and help you save even more money for your future.
Although tax-exempt retirement accounts do not offer any tax benefit, any money held in the account will grow tax-free until retirement giving you 0% capital gain taxes for 2023. When you’re ready to withdraw from your retirement account, your investment funds can also be withdrawn totally free of capital tax gains.
Wrapping your head around making the best investment choices while trying to maintain 0% capital gain taxes for 2023. Want to keep your capital gain taxes low? Reach out to Team Tax Goddess today!