Do you think the sale of an asset to a gain in 2013?
a difference of 5% of the tax rate makes a huge difference in your rate of return on an investment after tax.
This is how much your rate of capital gains may rise in 2013. The highest rate on capital gains is now 20% - against 15% in 2012.
And it does is not everything. If you report a relatively high income, you may also be subject to an additional 3.8% Medicare tax on net investment income, including capital gains.
How do I know if I have to pay the higher tax rate?
The new tax rate of 20% applies to your capital gains if you are in the new tax bracket on income of 39.6%.
This bracket applies if your taxable income is $ 400,000 ($ 450,000 if you are filing jointly, $ 425,000 if the head of household, or $ 225,000 if married filing separately).
do I pay the new additional tax on the net investment income?
you may have to pay an additional tax of 3.8% on the net investment income -. even if your income is not high enough for the tax rate gains and higher capital
You pay this tax if your modified adjusted gross income is $ 0,000 or more ($ 250,000 if filing jointly or $ 125,000 if married filing separately). You can reduce your investment income from this tax by investment interest expense, consulting fees and brokerage, rental and royalty expenses, and state and local taxes that you can assign to your income placement.
This new tax applies to investment income such as interest, dividends, capital gains, rental and royalty income. You pay in addition to the taxes you already pay investment income.
Add the additional tax on capital gains of 3.8% in the new tax rate on capital gains to 20% and you pay a total of 23.8% tax on capital gains - almost 10% more than you would have paid on the same sale in 2012.
How can I avoid paying the higher tax
now, more than ever, it is important to plan your sales? capital to avoid losing more of your investment to gain higher taxes
Consider these options :.
do not sell all at once Even if you are not normally in the tax bracket higher income, a big sale you can place LA- low for the year if you're not careful. You may want to sell some stock a year and wait until January to sell some more.
Take the product as an installment sale. If you have real estate, you've been holding for 30 years, do not let the sale you bump in the top tax bracket in the year of sale. Consider making an installment sale. In addition to saving taxes, you will create a steady stream of income for yourself.
Plan for a 1031 exchange If you are selling an asset and buying a property "like kind", you may be eligible to put off paying taxes the gain of the first property. The idea behind this rule is that you do not really realize a gain when you sell assets to buy another. Make sure to plan a return for 1031.
Look for other ways to reduce your tax bracket on income in the year of sale. If you sell an important asset at a gain, it can be a good year to sell different assets at a loss, contribute more to charity or a retirement account, invest in your business, or take other measures tax savings.
Buy and hold. The simplest way to put off paying taxes on fixed assets is to hang on them. Perhaps the rate of capital gain will come down. It has happened! Or you may be in a lower tax bracket than a year later, and after retirement. In all cases, you can leave your investments continue to grow simply by letting be.
Do you think that the rate of capital gains for high-income taxpayers will never back down?
photo credit: Thomas Jensen Frost photopin via cc
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