Top Guidelines on Deferring Capital Gains Tax
In taxation, a capital gain results when you sell a non-inventory asset at an amount higher than its acquisition cost. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Taxation authorities require you to report gains on the disposal of assets. At times, capital gains taxes amount to large amounts, but you can defer or avoid them, which will limit your liability. The following guidelines will help you defer capital gains on the sale of your non-inventory assets.
Make certain town an asset for a minimum of a calendar year before thinking of its disposal. The purpose of this step is to pay capital gains taxes at reduced rates because the income tax bracket that will be used during the calculations will be much lower. It is possible to save at least 20 percent of the amount you are likely to pay today with this strategy.
If you sell investment or rental property; there is a legal loophole in place that allows you to defer capital gains taxes without worries. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. This exchange is usually complex, making it necessary to hire a taxation expert for the paperwork. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.
Deposit the sale proceeds into a tax-deferred or tax-exempt retirement fund. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.
If you own a high-value asset, you can defer the payment of capital gains tax by handing it to a charitable trust so that they can sell it on your behalf. Note that charitable trusts are exempt from taxation, a benefit that you will reap from this kind of a transaction. The trust will then transfer to you a specified portion of the asset’s cost over a certain precise period. In case there is a leftover amount, it is channeled to charity work.
For someone with a dream of educating your child or grandchild, you can do so and still avoid paying capital gains tax at the same time. By depositing the proceeds of an asset sale to a college savings account, no capital gains tax liability will arise. A health savings account can also aid in your efforts to defer the payment of deferred tax. It is a tax-exempt account that helps in catering for future medical costs. However, withdrawals from this account must be for medical purposes only; otherwise, they will be taxed.
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