How to Minimize Capital Gains Taxes

When you sell an asset, the difference between the selling price and the price the asset costs you is a realized capital gain. When you have a realized capital gain, the government will also want its share of the gain. To keep your capital gains taxes at a minimum, you need to think about how you sell your assets.

Instructions

1. Hold your assets longer. Your assets will be taxed differently depending on how long you kept them before selling them -- less than a year or one year or more. Your best chance to get a lower capital gains tax rate is to hold the assets for at least one year.

2. Maximize your contributions to retirement plans. Put as much money as you can into IRAs, 401k and other retirement plans. These plans allow your investments to grow without having to pay capital gains taxes. This allows more money to remain in your account so that the growth of your assets can continue to compound.

3. Use capital losses to offset your capital gains. This is a double-edged strategy. It requires you to actually have a capital loss when you sell one of your assets. However, if you are ready to sell a very profitable stock, you can offset the capital gains by getting rid of a poorly performing stock. If you were going to take a loss on the stock anyway, you might as well use it to minimize the gains on your other stock.

References

• Folio Investing: Minimize Taxes
• Gaebler.com: For Entrepreneurs
• IRS.gov: Ten Important Facts About Capital Gains and Losses; Updated March 2011
• IRS.gov: Topic 409 -- Capital Gains and Losses; Updated March 2011
• IRS.gov: 2010 Instructions for Schedule D (2010)