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5 Tricks for Deferring Capital Gains Tax

A capital gain is a term used in taxation to refer to profit from the sale of a non-inventory item. A capital loss results if the cost of the same item is higher than the proceeds received from its sale. Once a capital gain results, your tax authorities require you to report it. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. Let’s explore some of the useful strategies you can make use of to defer them.

Keep an asset in your name for at least one year before transferring it to someone else in a sale transaction. A saving in capital gains tax will result because the tax rates that may be applied during its sale will usually be lower than they are today. Depending on your current tax rates, savings of up to 20 percent are possible.

A person who sells investment or rental property can defer capital gains taxes by using a legal loophole in the tax laws. 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. It is a complex exchange that may require you to find a tax expert to handle. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.

Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. Such a step will ensure that you defer tax to a later period when the applicable rates will be lower. 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.

You can hand over a valuable asset to a charitable trust to sell on your behalf, deferring or avoiding the payment of capital gains tax. Note that charitable trusts are exempt from taxation, a benefit that you will reap from this kind of a transaction. After the sale and for a particular number of years, the trust will pay a specific proportion of the asset’s cost to you. In case there is a leftover amount, it is channeled to charity work.

You can defer the payment of capital gains tax if you have the ambition of educating your kids or grandkids. Just deposit the funds into a college savings account and you are set. It is also possible to get the same effect with a health savings account. Such an account is tax-exempt and is meant to cater to future medical expenses. The exception, however, only applies if you withdraw the funds for medical and not other purposes.

Source: http://fooyoh.com/menknowpause_lifestyle_living/15322369/if-youre-selling-an-investment-heres-how-to-do-it-amp-what-to-do-next