As much fun as it is to watch an investment gain value, it is a drag to pay taxes on that appreciated investment. There are strategies, however, that will help you minimize capital gains taxes, but timing is everything. Here are some tips for deciding if now is a good time to take capital gains.
Have you held the investment for at least a year? The taxes you pay on your gains are determined by how long you hold investments in your portfolio before selling them. Gains made on assets that you have held for less than one year are taxed at your regular income tax rate; gains made on assets that you have held for one year or more are taxed at 0%, 15%, or 20%, depending on your tax bracket.
Can you use capital losses to offset capital gains? If you have a losing investment in your portfolio, you might want to sell it and use the loss to offset gains. If you have $5,000 in capital gains, for example, and you take a $5,000 capital loss, the two will cancel each other out. Additionally, if your annual losses exceed your annual gains, you can use the excess to offset your ordinary income, up to $3,000. And if you still have a net loss after that, you can carry $3,000 a year to future tax years.
Another option: consider investing in a low-turnover mutual fund that seeks to invest in a way that minimizes capital gains.
Can I help you find a low-turnover fund? Feel free to reach out