Tax Savings Strategies

March 12, 2021
Tax Savings Strategies

Recent tax law changes have many investors wondering if it’s still possible to avoid capital gains taxes. The good news is that most strategies to beat capital gains still work, but may require a few modifications. Following are several actions you can take now especially in light of potential changes to taxes that have been proposed by the Biden administration.

Harvest Losses

It is still possible to offset long-term capital gains by harvesting losses within your portfolio. For losses that are greater than your gains, it’s possible to deduct up to $3,000 per year against your ordinary income and carry over any excess to future years.

Make Charitable Donations

Even if you are no longer itemizing your deductions, it’s still possible to make a charitable donation of appreciated stock to avoid capital gains tax. One option is through funding a donor-advised fund. This type of fund provides an income tax deduction for the fair market value of any stock donated, with the added bonus of no capital gains tax. Your advisor can provide additional information on this type of fund.

Consider a 1031 Exchange

A 1031 exchange allows property owners to roll capital gains from the sale of a property into the purchase of a new property, which then takes on the first property’s lower cost basis. The benefit to this arrangement is it allows you to keep money working on your behalf that otherwise would have been paid out in taxes.

Buy and Hold

If you leave appreciated stock to your heirs at the time of your death, they will receive an automatic step-up in basis to the current market value at the date of your death; therefore, you avoid capital gains tax.

Make Gifts to Family Members

An annual gift exclusion still exists – up to $15,000 per individual each year. Highly appreciated stock that is given to a child or parent continues at its lower cost basis until it is sold. If that child or parent is in a lower tax bracket at the time of the sale, the capital gains rate is 0%. However, when making a gift to a child under age 24, be aware of updates to the “kiddie tax.”

Utilize Roth Contributions

Because contributions to a Roth IRA or 401(k) are made with after-tax money, they are not taxed at distribution.

Consider Opportunity  Zones

Opportunity zone funds invest in economically distressed communities and may be eligible for preferential tax treatment. This preferential treatment may include a temporary deferral of accumulated capital gains, a potential 15% cost basis step-up on capital gains invested, and a 0% capital gains rate on new gains for investments held 10 years.

Manage Your Tax Bracket

Work with your advisor to sell stock during years in which your income is lower, and keep an eye on paying 0% in capital gains whenever possible.

Invest In Your Home

Under the new tax laws, individuals can exclude up to $250,000 of capital gains in their primary residence ($500,000 for married couples filing jointly). Be sure to keep any receipts for home improvement projects that may add to your home’s cost basis.

Save for College Using a 529

Contributions to 529 savings plans grow tax free and, when used for education expenses, withdrawals are also tax free.

Remember Your HSA

A health savings account allows you to contribute using pretax dollars, and that money grows and is distributed tax free. Another bonus of HSA accounts is that they allow investors to save for future healthcare expenses in retirement.

Time Your Move

Several states do not have state income tax, including Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. If you plan on moving to one of these states, wait until you’ve established your domicile before triggering a sale that would be taxed at capital gains rates.

At Mariner Wealth Advisors, our goal is to assist you in every step of making this type of transition, from simple steps like changing account addresses, to the more involved steps like homesteading a residence properly.

Partner With Your Advisor

We believe that an overall wealth management plan should integrate finances and taxes to help give you the most tax-advantaged strategy possible. For more information about how to incorporate capital gains saving strategies, contact your wealth team.

This piece is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass.

Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing.

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