When a person makes an income in the first phase, only they become liable to pay a certain amount in taxes once they cross the minimum wage earning parameter threshold. Beyond that, one needs to pay a certain amount in taxes, as it’s expected for them to pay at the end of every fiscal year.
The next thing that also gets taxed is the capital gain, which a person makes from the sale of certain assets. For example, a person who has invested in the stock market and made a return on those assets is liable for capital gain tax.
A tax accountant attorney can help a person when they have multiple tax files and can guide them in any litigations that happen due to taxes. A person, therefore, becomes liable to the government for a hefty amount.
In this blog, we will look at some of the efficient ways through which one can reduce capital gain taxes and legally become an eligible individual who can pay less in capital gain taxes.
Understanding the Capital Gains Tax and its Types
Capital gain tax is a difference which a person gains from the purchase of an asset. It’s the classic use where a person buys low and sells high, and one needs to pay a cut, which is the tax that the government will charge from the profit of that sale.
There are broadly two types of taxes, and one of the common patterns are the short-term and the long term taxes for capital gains.
STCG: Short-term capital gains tax is a phase or the tax percentage that gets levied on the amount of the profits if the holding period is less than one year. When it comes to STCG, the tax percentage is between 10% to 37%, depending on the asset class that has been sold.
LTCG: Long-term capital gains tax is a tax that gets levied on the assets where the profits have been made by holding that asset for more than 2 years or longer. The percentage can differ and change between 0% to 20% depending on asset classes and the type of exemptions a person is seeking.
Tips to Reduce the Tax Amount
There are multiple ways through which one can plan to reduce the taxable amount from the capital gains tax.
· Check the Holding Period of the Asset
The period of holding is something that one must keep in mind. As longer a person holds an asset, the lesser the percentage of taxes, and one can make themselves liable to avail certain exemptions that reduce the overall tax amount.
· Check the Exemptions and Use It
Capital gain taxes are something that gets applied to the sale of assets. However, some of the exclusions are there in federal law. For example, married couples can file jointly the profits and can get exclusion if the profits are below $500,000 from a house sale.
One can take the help of an IRS audit attorney from San Diego or another place who can contest your exemption rights in front of the IRS and conduct internal audits for fact-checking the documents.
Apart from these, there are ways such as using tax-advantaged funds and keeping the profits there for retirement, which will also attract less tax from the person.
