How to Beat the 2013 Capital Gains Tax Increase

7:33 pm Asset Protection, Estate Planning, Tax Planning

tax wallet empty 150x150 How to Beat the 2013 Capital Gains Tax IncreaseIn January, capital gains taxes increased to 20% plus another 3.8% surtax for singles earning over $200,000 and couples making more than$250,000 annually.  Add to that the fact that California has the top capital gains rate of any state at 13.3% and you have a lot of Californians looking for ways to offset the hikes in capital gains tax rates.

A recent article at Forbes.com explored 11 ways to help beat the 2013 capital gains tax rate hike:

1.  Use your home as a tax shelter.  Singles can exclude up to $250,000 of gain and married couples get a $500,000 exclusion.  Keep track of any capital improvements that add to your primary residence’s cost basis.

2.  Control your tax bracket.  Employ strategies that keep your taxable income at a minimum so you can take just enough gains to stay in the 15% bracket, making your capital gains rate zero.

3.  Sell your loser stocks.  If you have some losers in your portfolio, harvest those to offset the gains.

4.  Make gifts to family.  You can gift highly appreciated stock (up to $14,000 each) to a child or parent in a lower tax bracket; when they sell, their capital gains rate is zero.

5.  Make gifts to charity.  Giving appreciated stock to a charity gives you a deduction for the fair market value of the stock and capital gains taxes do not apply.

6.  Feed a Roth.  Stuffing after-tax cash into a Roth ensures future growth and distributions are tax-free.

7.  Open a 529 Account.  Money you set aside in a 529 College Savings Account will grow tax-free and withdrawals are not taxed either.

8.  Buy and hold.  Stocks left to heirs receive a step-up in basis to current market value upon your death, so you escape the capital gains bite.

9.  1031 Exchanges.  Real estate investors or art collectors can roll all the capital gains from an asset being sold into new property or art, which takes on the old property’s low basis.

10.  Charitable trusts.  Using a charitable remainder unitrust (CRUT) to house appreciated assets lets you defer a capital gains tax hit.

The 11th strategy outlined in the Forbes article suggests a move from California to a tax friendlier state like Nevada, Texas or Florida.  But we would hate to see you go, so we’re not going to suggest that here!

If you would like to learn more about preserving and protecting your assets, contact our Newport Beach law firm.

 

 

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