This may have already come up and if so, my apologies.
First, let me say I am not a Federal Income Tax expert. That being said, as I planned for year end and took a closer look at my investments I ran across something that may be of value to someone here to save money, so I thought I should pass this on. I will attach a link to an article that also helps explain it.
Many have investments in mutual funds, etc. they may have had for many years. The nest egg may have taken a hit during the downturn but it hopefully came back. It may now be sitting in the black and the market seems to be on a slow uptick so why fix what isn't broken, right?
Not necessarily. Here's why. The current long term (investments held longer than one year) capital gain tax rates on investments became effective in 2008 and they will end at the end of 2012. We hear in the MSM how the capital gains rate is going to go from 15% to 20%. There is more to the story that isn't being reported though. More below...
What is reported in the MSM relates to people in the 25% tax bracket or higher and the capital gains tax rate will go up for them from 15% to 20%. If however your taxable income is in the 15% or lower tax bracket, the current capital gains rate is 0%. Yes that is a zero.
You are in the 15% taxable income level or lower for 2012 if your taxable income is equal to or lower than the following levels; single $35,350, married filing jointly $70,700, or head of household of $47,350. It is extremely important to note that these levels are taxable income levels. These are the amounts after taking deductions and exemptions. For example; a family of four that are married filing jointly could have an income of $97,800 (including the capital gain income) and still qualify for the 0% capital gains rate. $97,800 adjusted gross income less $11,900 standard deduction less $15,200 personal exemptions ($3,800 X 4) = $70,700.
Beginning January 1, 2013 this 0% capital gains rate is going to jump to 10%. Selling something that may have a $10,000 long term capital gain while still in 2012 will save $1,000 in federal income tax versus selling it after December 31, 2012. Granted, if you don't sell in 2012 you won't have to pay capital gains tax until you do sell it but as it sits right now, you will eventual pay capital gains tax on it. If you do sell it now, you pay $0 and you can purchase a new investment with a different basis and restart the clock. Please be aware that when reinvesting proceeds there can be waiting periods. Generally there are no such restrictions on mutual funds.
So, if you have some old investments you haven't looked at lately, it may be a good time to dust them off and maybe take the long term capital gains now. There is a chance that holding the 2012 capital gain tax rates will be part of some deal in Congress but I'm not holding my breath for that. My own opinion is that capital gains tax rates for these tax brackets should remain at 0%. The middle class needs all the help they can get to save money and help it grow. As for the higher income tax brackets let the rates go up. One other tidbit I didn't know was that those with taxable incomes of $200,000 single, $250,000 married, will not only pay a 20% capital gains rate starting in 2013 but will also have to pay a 3.8% Medicare kicker on capital gains.
Everyone's situation is different so please, remember my opening statement, I am not a Federal Income Tax expert. Before you take any action, please confirm the above with a financial adviser, an investment manager, the IRS, etc.
Link to info:
You can Google for many other sites.