How To Reduce Your Capital Gains Tax?

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Capital Gains Tax History
Taxes. Nobody likes them. Capital gains in the US have been taxed ever since 1913 (with a maximum rate of 7%). And, most likely, they are not going away anytime soon. Recently it’s actually been proposed to increase them. So, what can we do about these taxes? For short term gains, meaning the underlying position has been held for less than a year, the gain will be taxed at your ordinary income tax rate. There’s not much we can do there. But for long term gains, meaning the position has been held for over one year, there is more wiggle room. The current tax law allows long term capital gains to be taxed anywhere between 0%-23.8%. Yes, ZERO Percent. 
Zero Taxes
So, how can you achieve this 0% tax rate? It’s based on your taxable income. For 2020, if you are married filing jointly with taxable income under $80,000, then you can pay 0% on your capital gains. If you are single, your taxable income needs to be below $40,000. You might be thinking there’s no way you could get your income below those thresholds, but consider this: when you retire and you no longer have a salary from your job, your taxable income might be below that threshold. At that point, you could delay social security (which most people probably should do to maximize their benefits anyway) and therefore have lower taxable income throughout those years. This could be a good way to maneuver yourself into the lower tax bracket for a few years in order to realize gains at 0%. Your source of income in this scenario could come from your non-retirement assets, such as taxable individual, joint, or trust accounts. We could take what you need to live on from those taxable accounts while trying to ensure any realized gains do not cause you to go above the 0% threshold.
Why is the capital gains tax rate higher than the income tax rate?
There has been a lot of talk lately of increasing the capital gains tax so that it is on par with income tax rates. If implemented, this would be the largest capital gains tax rate increase in history, from 23.8% to 39%. Aside from the fact that this could increase your taxes, the change also has a risk-off element to it. The capital gains tax was structured to be lower than the income tax rate because investing your hard-earned money is deemed a riskier endeavor for you than working for your salary and putting it into a savings account. The lower tax on investments (capital gains) exists partially to incentivize you to take that risk with your money on the stock market. Therefore the capital gains tax can affect stock valuations, too. 
Its Effect on the Market
If this were to be implemented, then there would likely be an immediate sell off. Many doubt it would have long-term effects though. Immediately after the law passes, most likely many investors would try to realize gains during the time period when the lower rate was still in place. In 1986, when the rate was increased from 20% to 28%, the sale of stocks and other assets rose by 60%*.
Commonwealth Financial Network® and One Bridge Wealth Management does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation