How to Achieve Maximum Success with Resources

Top Guidelines on 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. A capital loss results if the cost of the same item is higher than the proceeds received from its sale. Once a capital gain results, your tax authorities require you to report it. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. Here are top 5 tricks for deferring capital gains tax effectively.

Ensure you own the asset for at least one calendar year before selling it. A saving in capital gains tax will result because the tax rates that may be applied during its sale will usually be lower than they are today. Waiting to sell after a year will result in savings as high as 20 percent.

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.

Deposit the sale proceeds into a tax-deferred or tax-exempt retirement fund. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. 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.

You can hand over a valuable asset to a charitable trust to sell on your behalf, deferring or avoiding the payment of capital gains tax. 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. The trust will then transfer to you a specified portion of the asset’s cost over a certain precise period. If there is anything left over, it is donated to charity.

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. You can also get similar effects if you have a health savings account that you will deposit the funds to. Such an account is tax-exempt and is meant to cater to future medical expenses. The exception, however, only applies if you withdraw the funds for medical and not other purposes.

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