6 Ways To Defer Or Pay No Capital Gains Tax On Your Stock Sales

Put more into your piggy bank with tax-planning strategies for capital gains

Let’s say you own stock that may generate a big capital gain when you sell it. It could be shared in Apple or Amazon that you purchased a long time ago, founder’s stock in a startup that turned into a hot IPO company, or shares from employee stock option exercises or restricted stock vesting that have appreciated substantially. While most securities held over one year qualify for the favorable rate on long-term capital gains, the total tax can still be significant.

The complex federal tax code provides a few ways, depending on your income, personal financial goals, and even your health, to defer or pay no capital gains tax. If you follow the rules and consult tax experts when needed for the more sophisticated techniques, these tax-planning opportunities below do not tax dodges or loopholes that will get you in trouble with the IRS. Most are considered tax expenditures (i.e. what we tax geeks and the US Treasury Department refer to as tax-code provisions created to encourage certain activities or benefit certain categories of taxpayers).

1. The 10%–15% Tax Bracket

For people in the 10% or 12% income tax bracket, the long-term capital gains rate is 0%. Under the Tax Cuts & Jobs Act, which took effect in 2018, eligibility for the 0% capital gains rate is not a perfect match with the income ceiling for the 12% income tax rate. The income thresholds for the 0% rate are indexed for inflation:

• in 2019, $39,375 (single filers) and $78,750 (joint filers)
• in 2020 (estimated), $40,000 (single filers) and $80,000 (joint filers)

Before you believe you qualify for this special 0% capital gains rates or think you can shuffle your stock to someone else in a lower tax bracket who can sell to get the 0% rate, you want to be sure you don’t trip over the tax rules. For example, the net proceeds from your stock sale count against the income limit. Should you decide this is a good year to convert a traditional IRA to a Roth IRA, that income counts, too. The “kiddie” tax is triggered should the gifted stock be sold by a child under the age of 19 (for full-time students, under the age of 24).

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Tax planning is an essential part of a financial plan. The reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.

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