TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Monday, February 18, 2013

WSJ: The New Capital-Gains Maze

WSJWall Street Journal Tax Report:  The New Capital-Gains Maze, by Laura Saunders:

Chances are your capital-gains taxes are going up this year—and if you aren't careful, you could end up paying more than necessary. ...

Under the old system, there were often only two rates: zero and 15%, depending on your income. Now, there are three tax tiers: zero, 15% and 20%.

And that isn't all. There also are three backdoor tax increases that can push your effective rate even higher—to nearly 25%.

Experts say many taxpayers whose rate still is 15% could well owe one-third more than they would have last year. And many top-bracket taxpayers will owe nearly two-thirds more, even if their income is that high only because of a once-in-a-lifetime sale....

Fortunately for investors, there still are ways to minimize the hit—and even dodge it. Strategies include carefully timing investment sales, making charitable donations and family gifts with assets instead of cash, and minimizing certain income. With markets approaching record highs, investors need to know them. ...

Here is what to do to minimize your gains pain this year.

  • Lower your adjusted gross income. ...
  • Take advantage of "air pockets."  The tax code stacks income, deductions and net long-term gains in a way that shrewd taxpayers can exploit. Here's an example: A retired couple has $70,000 of adjusted gross income before capital gains and $30,000 of itemized deductions. (They might also have tax-free income from munis and Roth IRAs.) According to tax rules, the deductions reduce their income to about $40,000. This leaves them with an "air pocket" of about $33,000 before they cross from the zero rate to the 15% rate on long-term gains. ...
  • Give appreciated assets to charity. ...
  • Strategize family gifts. ...
  • Hold on for dear life. ...
  • Consider installment sales. ...
  • Remember the home exemption. ...
  • Beware of lower limits for trusts. ...
  • Don't be driven by taxes. ...

http://taxprof.typepad.com/taxprof_blog/2013/02/wsj-the-.html

Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef017d411dc43c970c

Listed below are links to weblogs that reference WSJ: The New Capital-Gains Maze:

Comments

Notice that what has happened here, almost entirely by accident, is that the capital gains taxation regime has become a progressive tax rate rather than a fixed or flat tax rate.

This is a good thing. As for the complexity, it does kick in with high income taxpayers, but these are taxpayers who almost certainly have tax advisers and professional tax preparers, and so the cost of the complexity is really just a few more lines of code in tax preparation software.

While at some level of taxation of capital gains there will be significant dis-incentives to invest, the current levels, which even after the increases are still below historical levels, should have no major impact. Lack of investment in the U. S. economy today is due to lack of Aggregate Demand, not from high taxation.

Posted by: David R. | Feb 18, 2013 10:05:03 AM

What about lack of trust?

Posted by: Sandy P. | Feb 18, 2013 3:13:48 PM