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Want to Pay 0% in Taxes? Here’s How

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24.08.2021

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One of the greatest expenses business owners and retirees alike face is income taxes. That’s why a forward-thinking tax planner is so valuable. They can leverage the Internal Revenue Code (IRC) to lower your taxes and help you build wealth. However, there’s another tax that affects business owners and investors of all types. Of course, I’m referring to the capital gains tax. This tax is levied on the net gains you make when selling capital assets like stocks, businesses, land, works of art, etc.

But what if I told you, it was possible to minimize capital gains taxes to get a 0% tax rate?

In 2021, a married couple filing jointly and making below $80,800 per year (including capital gains earnings) pays no capital gains taxes. With that in the back of your mind, your goal is to reduce your family’s taxable income to $80,800 or less in the years when you earn capital gains. You may think that’s impossible, but it’s not.

I have a client who owns a small business that earned $63,000 in profits. That same year, he flipped a rental house, generating an additional $30,000 in long-term capital gains. Obviously, that placed him over the $80,800 income threshold. Therefore, his tax adviser and I had to find ways to reduce his taxable income. In his case, we utilized retirement accounts and HSAs and, ultimately, got his income below the $80,800 threshold. Because of that, he paid zero taxes on the $30,000 earnings he made on the rental home he sold.

You might be able to do the same thing. There are several ways to reduce your taxable income. Speaking with your tax planner and financial adviser can help determine which methods are right for you.

If possible, don’t sell a stock or other capital asset in the first 12 months of ownership. The IRS separates capital gains into two different classifications: short-term gains and long-term gains. Selling capital assets within the first 12 months of owning them can incur ordinary income tax rates of up to 37% on their gains. However, by waiting 12 months to sell capital assets, you could incur a much lesser rate. Long-term capital gains tax rates range from 0% to 20% on your profits. That’s a significant difference!

For example, let’s say you purchased a stock for $100,000 nine months ago, and it’s currently worth $300,000. In this scenario,........

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