How to Get the Best Tax Results from Capital Gains and Losses

Ken Berry for CPA Practice Advisor writes:  The end of the year often turns into “harvest time” for tax-savvy investors. By harvesting either capital gains or capital losses from securities transactions, depending on their situation, they can reap tax rewards when they file their returns. However, recent changes in the tax landscape may affect year-end decisions.

Here’s the lay of the land: All other things being equal, you can use capital gains and losses realized at year-end to cancel each other out, either eliminating or reducing tax liability. Traditionally, investors have looked to harvest losses to offset prior gains in the year. As a bonus, a loss in excess of gains offsets up to $3,000 of ordinary income, which is currently taxed at rates up to 39.6%, before being carried over to the next year.

But now there’s a greater emphasis on harvesting long-term capital gains. Short-term gains from transactions involving securities held a year or less are taxed at ordinary income rates. Conversely, long-term gains from sales of securities held longer than one year are taxed at a maximum rate of only 15% for most investors, and 20% for investors in the top ordinary income tax bracket.

Even better: Long-term gains are taxed at a 0% rate to the extent that income falls in the lowest two ordinary income tax brackets of 10% and 15%. This opens up more planning opportunities for low-bracket investors or those who are showing a smaller-than-usual income this year due to circumstances like a large business loss.[snip] - the article continues @ CPA Practice Advisor - click here to continue reading....