How to Achieve Maximum Success with Resources

saad/ December 30, 2016/ Financial

5 Tricks for 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. A capital loss results if the cost of the same item is higher than the proceeds received from its sale. It is mandatory to report capital gain to taxation authorities. 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.

Make certain town an asset for a minimum of a calendar year before thinking of its disposal. 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. Waiting to sell after a year will result in savings as high as 20 percent.

There is a legal loophole that allows persons who sell investment or rental property to avoid capital gains taxes. It applies when the proceeds from the sale of the said property are channeled back to the same type of investment within a specified period, which is usually 180 days. It is a complex exchange that may require you to find a tax expert to handle. The good thing is that it works for almost anyone who uses it to defer capital gains tax.

Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. Such a step will defer the payment of tax to a period when lower rates will be in operation. Note, however, that there are limits to the amounts that you can add to most retirement accounts, so use this strategy in conjunction with another one if the funds involved are substantial.

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. Legally, charitable trusts do not pay taxes, and that means that you will too not be liable to capital gains tax if they sell it on your behalf. After the sale and for a particular number of years, the trust will pay a specific proportion of the asset’s cost to you. If there is anything left over, it is donated to charity.

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. It is a tax-exempt account that helps in catering for future medical costs. For you to benefit from this exemption, the funds withdrawn must not be used for other purposes other than medical.