How to Achieve Maximum Success with Resources
5 Tricks for Deferring Capital Gains Tax
In taxation, a capital gain results when you sell a non-inventory asset at an amount higher than its acquisition cost. On the other hand, if the sale proceeds are lower than the asset’s purchase price, a capital loss results. It is mandatory to report capital gain to taxation authorities. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. The following guidelines will help you defer capital gains on the sale of your non-inventory assets.
Make certain town an asset for a minimum of a calendar year before thinking of its disposal. 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. Depending on your current tax rates, savings of up to 20 percent are possible.
A person who sells investment or rental property can defer capital gains taxes by using a legal loophole in the tax laws. 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. 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.
Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. Such a step will ensure that you defer tax to a later period when the applicable rates will be lower. 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.
If you own a high-value asset, you can defer the payment of capital gains tax by handing it to a charitable trust so that they can sell it on your behalf. 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. After the sale and for a particular number of years, the trust will pay a specific proportion of the asset’s cost to you. All amounts that remain are utilized for charity purposes.
For someone with a dream of educating your child or grandchild, you can do so and still avoid paying capital gains tax at the same time. 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. Such an account is tax-exempt and is meant to cater to future medical expenses. However, withdrawals from this account must be for medical purposes only; otherwise, they will be taxed.