9 Easy Ways to Reduce Your Tax Bill Series - Tax Tip #7

Over the next weeks we are going to provide you 9 easy ways to reduce your tax liability - 2016 Edition. Every Monday and Wednesday we will be posting a new tip, so stay tuned!

Tax Tip #7

Another special tax deduction that has been extended is for the lower brackets is the Capital Gains Tax. Many people believe that the Capital Gains Tax Rate is 15%, because that’s what they paid the last time they sold an investment at a gain. For instance, if Mary sold stock in 1998, she may have paid 15% capital gains on the federal level, and then an additional tax on the state level, making it unattractive to sell other stocks with large gains. However, the Capital Gains Tax Rate is not 15%; it is on a sliding scale based upon what your actual personal tax rate is.

In 2016, if you are in the 10% tax bracket, then you might be able to sell a stock or other appreciated asset and pay 0% capital gain. That's right; the minimum Capital Gains Tax Rate for 2016 is still zero for many Tax Brackets! For many people who primarily have Social Security income, which is not taxable up to a certain income limit, and perhaps a small pension or IRA income stream, it is not uncommon for them to be in the 10% or 15% tax bracket. Those people could sell highly appreciated assets this year, and pay no capital gains tax whatsoever. ALSO don’t forget if you sell a stock at a gain there is NO 30 DAY RULE! You could repurchase the same stock the next day; the 30 day rule is if you take tax losses…NOT profits! Selling a profit but still paying no tax means a free step up in cost basis after 2016 it’s not likely there will be a 0 capital gains rate again. Carpe Diem!!