Capital Gain Strategies

Many tax professionals cringe at the thought of a client coming to them with cryptocurrency transactions. However, a May 2021 NASDAQ survey shows that 17 percent of American adults own crypto, making it harder for tax pros to avoid. It may soon be inevitable that practitioners will need to process cryptocurrency transactions. IRS Circular 230 requires practitioners to “possess the necessary competence” and to “exercise due diligence” in the return they prepare. Failure to meet these provisions could result in the taxpayer unnecessarily overpaying tax. What exactly does that require? Read on to find out!

The headlines have said it all. “Biden Wants up to 43 percent of Your Retirement Gains!” or “Americans Can’t Afford Biden Inflation Tax!” Also recently seen, “Biden Doubles Capital Gains Rate,” and “Biden Tax Rule Would Rip Billions From Big Fortunes at Death!” The hysteria presented in the media as we anxiously await proposed changes in tax law through the pending budget proposal has many investors debating whether or not to lock in low capital gains before anticipated tax hikes. Wealthy investors like Jeff Bezos and Warren Buffet have reportedly been selling large numbers of stock market shares rumored as a response to news of an impending capital gains tax increase, many people are left wondering what moves, if any, should they take now to avoid higher taxes. Given that we know to anticipate higher taxes, here’s what you should do now to lock in taxes while they are on sale.

The promoters of Monetized Installment Sales got some bad news from the IRS earlier this month. The IRS released an analysis the Office of Chief Counsel did outlining six, count them six, ways in which the transaction does not work as the promoters claim. The release will not stop the industry in its tracks, but it will probably be a relief to practitioners who have been advising that the technique is flawed.

Practically overnight, cryptocurrency has gone mainstream, with more and more investors funneling money into Bitcoin, Dogecoin, and other cryptocurrencies. The IRS has responded with increased interest and scrutiny, demonstrated by the addition of the cryptocurrency question on the front page of 1040. Whether you have invested in cryptocurrency or not, you are required to answer this tax return question. Many investors choose to take the most conservative position to avoid future correspondence from the IRS but trying to avoid a letter is no reason to pay more tax than necessary! After all, the Supreme Court has long held that a taxpayer has the right to do everything possible under the law to reduce tax.

The monetized installment sale (MIS), which is more of a product than a tax concept sounds very attractive. In the right circumstances MIS promises a very long deferral of capital gains tax for a reasonable cost. But does the strategy actually work?

The Tax Cuts & Jobs Act of 2017 (TCJA) created Opportunity Zones (OZ). Taxpayers who invest in Qualified Opportunity Zones can reduce capital gains tax and pay zero tax on the investment’s future appreciation. For this reason, Opportunity Zones have a significant edge over traditional capital gain deferral strategies like the 1031 Exchange. With more than 8,500 economic zones throughout the United States, investors and business owners have plenty of choices. Additionally, the investment gives them a chance to do some good in an economically depressed area, make some tax-free money, and achieve some permanent capital gain savings even after you’ve already sold your asset. What’s not to love? There are a number of intricate rules concerning OZ investment tax breaks so if you want to begin or expand your business or real estate holdings using these tax breaks, read on to learn more.

Timing might be one of the oldest, most valuable tax strategies known. Essentially, a timing strategy allows a taxpayer to pay tax when rates are generally lower rather than when in a higher tax bracket or when facing increasing tax rates. Given this, 2020 may have been an optimal time to sell capital assets if tax rates rise under the new administration. President-elect Joe Biden has suggested taxing capital gains as ordinary income for high-income taxpayers (more than $400,000), as well as raising the top tax rate from 37% to 39.6%. Here’s how to cash in on the lower rates and, more importantly, when. While tax law changes seldom pass quickly, we often see changes made retroactive to the beginning of the year they are voted into law. Based on a recent story in The New York Times, Bob Dylan may have anticipated the increase when he sold the copyrights to his catalog of more than 600 songs for $300 million. Not to fret if you found yourself missing the beat of Dylan’s lead, there are many things a taxpayer can do to reduce capital gains tax, especially for self-created works of art. Here’s how.

The end of the year is a time for holidays, family, and maybe overindulging at the dinner table. It can also be a time for substantial tax savings. There are many techniques a taxpayer can use to minimize their tax burden for the year. The key to many of them is acting before the calendar year comes to a close. Specifically, let’s examine tax strategies for the taxpayer with investments, such as stocks, bonds, and mutual funds. These strategies can help taxpayers lower taxes, keep more money in their pockets, and donate to their favorite charities.