5 Tricks for Deferring Capital Gains Tax
A capital gain is a term used in taxation to refer to profit from the sale of a non-inventory item. If, however, you receive less than you paid for the asset, you will end up with a capital loss. It is mandatory to report capital gain to taxation authorities. At times, capital gains taxes amount to large amounts, but you can defer or avoid them, which will limit your liability. Let’s explore some of the useful strategies you can make use of to defer them.
Make certain town an asset for a minimum of a calendar year before thinking of its disposal. Note that, one year from the date of your intended sale, the tax rates could be lower, and that will translate into savings. Depending on your current tax rates, savings of up to 20 percent are possible.
There is a legal loophole that allows persons who sell investment or rental property to avoid capital gains taxes. To qualify, you have to channel the funds received from such a sale to the same type of investment, something you must do within 180 days of the transaction. It is a complex exchange that may require you to find a tax expert to handle. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.
Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.
It is possible to defer or avoid the payment of capital gains tax on a highly-valuable asset by handing it over to a charitable trust so that this party can dispose of it for you. Legally, charitable trusts do not pay taxes, and that means that you will too not be liable to capital gains tax if they sell it on your behalf. For a specified number of years that will follow, you will receive a percentage of the total asset’s cost. If there is anything left over, it is donated to charity.
If you have ambitions of educating your kids or grandchildren, it is possible to turn those dreams into ways of deferring your capital gains liability. Just deposit the funds into a college savings account and you are set. You can also get similar effects if you have a health savings account that you will deposit the funds to. It is a tax-exempt account that helps in catering for future medical costs. However, withdrawals from this account must be for medical purposes only; otherwise, they will be taxed.