5 Tricks for Deferring Capital Gains Tax
If you sell a-non inventory asset such as land, building, and stocks and the amount you receive is higher than what you paid for it, this is called a capital gain in taxation terms. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Taxation authorities require you to report gains on the disposal of assets. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. Let’s explore some of the useful strategies you can make use of to defer them.
Make certain town an asset for a minimum of a calendar year before thinking of its disposal. The purpose of this step is to pay capital gains taxes at reduced rates because the income tax bracket that will be used during the calculations will be much lower. Depending on your current tax rates, savings of up to 20 percent are possible.
There is a legal loophole that allows persons who sell investment or rental property to avoid capital gains taxes. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. The complexities involved in this type of an exchange are best handled by a taxation expert, so hire one before proceeding. The good thing is that it works for almost anyone who uses it to defer capital gains tax.
Since most retirement funds are tax-deferred or tax-exempt, deposit the proceeds of the asset’s sale to such an account. Such a step will defer the payment of tax to a period when lower rates will be in operation. Note, however, that there are limits to the amounts that you can add to most retirement accounts, so use this strategy in conjunction with another one if the funds involved are substantial.
It is possible to defer or avoid the payment of capital gains tax on a highly-valuable asset by handing it over to a charitable trust so that this party can dispose of it for you. Charitable trusts are usually tax-exempt; and so, if they sell it for you, there will be no issue of capital gains tax to worry about. For a specified number of years that will follow, you will receive a percentage of the total asset’s cost. All amounts that remain are utilized for charity purposes.
You can defer the payment of capital gains tax if you have the ambition of educating your kids or grandkids. You just have to place the funds from the sale into a college savings account. It is also possible to get the same effect with a health savings account. It is a tax-exempt account that helps in catering for future medical costs. For you to benefit from this exemption, the funds withdrawn must not be used for other purposes other than medical.