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I would like to lower my capital gains tax as much as possible. I already know about the income tax bracket and the length of time you hold a stock affects the capitals gains tax but is there any means to reduce capital gains taxes? (For example IRA Contributions)

What is the best way to protect my capital gains earnings? (Legally of course!!!)

2006-12-09 18:22:15 · 4 answers · asked by Anonymous in Business & Finance Taxes United States

4 answers

You can't contribute to an IRA if you don't have any "earned" income. Earned income means salaries or wages from an employer or self-employment income.

There is not much you can do to lower your Federal capital gains taxes as the long term rate is at the lowest rate at 15% now. However, there may be state tax planning opportunity depending on your residency status.

2006-12-09 18:32:14 · answer #1 · answered by AK 5 · 1 1

Depending on how much money you are talking about, it maybe worth while to speak with a stock investment adviser. There are ways to transact stocks and options to create losses on paper and helps reduce capital gains. It helps if you already have an existing portfolio. However, as I said, depending on your situation the cost of working with an adviser might wipe out any potential gains.

Another more sure way is to really exhaust all your records for anything that might increase the base. For example, if you are speaking of capital gains from selling a home, then go through your records to find receipts for any capital improvements, casualties that weren't previous claimed in Schedule A etc. When the base is increased, the gain is reduced and thus reduces capital gain tax.

Best wishes.

2006-12-10 13:46:23 · answer #2 · answered by JQT 6 · 0 0

A contribution to a traditional IRA will reduce your adjusted gross income, and therefore reduce your taxes, but it does not affect your capital gains tax.

I recommend holding stocks long term (over 1 year) to reduce capital gains tax rates. If youre selling stock and realizing capital gains perhaps there are other stocks in your portfolio that have unrealized losses that you can sell. The losses will offset the gains. This is the only thing I can think of.

2006-12-10 04:59:31 · answer #3 · answered by tma 6 · 2 0

Consider alternatives to selling to defer the capital gain while still getting the economic benefit of the sale. In the case of real estate, you may consider a like kind exchange. In the case of stocks, discuss puts, calls and collars with your broker.

2006-12-10 04:20:24 · answer #4 · answered by mattapan26 7 · 0 0

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