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The point of investing is to earn a profit, and part of investment success is understanding how your investment profits are taxed. You know the IRS takes a share of your profit, but did you know you can cut the tax bill on your capital gains?

Your specific short-term capital gains tax rate depends on your income tax bracket – just like on your regular federal taxes. The brackets apply to your entire taxable income. The Motley Fool uses the current short-term capital gains tax rates as an example:

the current short-term capital gains tax rates

Naturally, you won’t be able to determine your exact capital gains tax rate until you know your total income for 2017.

Preserving More Profit by Avoiding High Short-Term Capital Gains

There are a few things you may be able to do to legally lower the rate you’ll need to pay.

  • If you invest in a tax-deferred account, you can typically buy and sell stocks without immediate tax consequences from gains or losses on their sale.
    If you hold an investment for longer than one year before selling, you can qualify for lower long-term capital gains rates.
    If you have investments on which you have lost money, selling them to generate short-term capital losses can allow you to offset gains.
    If you are an attorney, you may be a candidate to defer fees.

Dealing with short-term capital gains is a good problem to have – it means you made a profitable investment. Still, it makes sense to cut your tax bill when you can by making smart financial decisions and taking the right steps to avoid high short-term capital gains rates.

 

About John Bair

John Bair is co-founder of Milestone Consulting, LLC, a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. John’s team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.

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