How to Eliminate Capital Gain Taxes
A capital gains tax is imposed by the Internal Revenue Service on the sale of capital assets for a gain. Capital assets are almost anything used for personal or investment purposes. Taxpayers will use Form 1040 Schedule D to report their capital gains and losses. A taxpayer must sum together short-term capital gains with short-term capital losses. They must do the same thing with long-term capital gains and losses. The Internal Revenue Service taxes capital gains at a preferential tax rate.
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Instructions
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Determine if you will have a capital gain during the year from selling capital assets. You should differentiate between long-term and short-term. Generally, if you have owned the asset for less than a year, it is a short-term capital asset. If you have owned the asset for more than a year, it is a long-term capital asset.
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Sell a capital asset at a loss. Be sure to match if the asset is long-term or short-term that you want to eliminate. For example, if a taxpayer expects a $5,000 short-term capital gain, then the taxpayer could sell a short-term capital asset at a loss during the year to offset the gain. This could be accomplished by purchasing stock that decreased $5,000 in value during the year and then selling the stock. There are many different ways to sell a capital asset.
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Use a capital loss carryover from a previous tax year. If a taxpayer has more than $3,000 in capital losses during the year, then the taxpayer can carry the loss over to another year. The loss will either offset long-term capital gains or short-term capital gains depending on where the loss originally came from.
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References
- Photo Credit A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com
