Minimizing long term capital gains

[wanaberetiree]

I am expecting a windfall from one of start-ups I worked for in amount of ~250-300K.

I exercised my stock options about 6 years ago, so almost all of this amount will be long term capital gains.

Any advice how I could minimize taxes?

Thanks!

 

[GrayHare]

If you have charities in mind, then a Charitable Remainder Trust or similar might fit.

 

[SecondCor521]

If there's any way you can split the receipt into this year and next year, that would probably help because you'd probably be able to be taxed at a lower marginal bracket.

2Cor521

 

[meierlde]

If there's any way you can split the receipt into this year and next year, that would probably help because you'd probably be able to be taxed at a lower marginal bracket.

2Cor521

Since its a long term capital gain it will be taxed at 15% this year (2012) it is anyones guess what the rate for 2013 will be.

 

[SecondCor521]

@meierlde, you're right. I was thinking ordinary income. Duh.

2Cor521

 

[audreyh1]

Actually, if your ordinary income is under $69,000 (married, filing jointly) you get a break on the tax on long-term cap gains up to that amount.

Be glad it's long-term capital gains. It's currently at a historical low level tax rate. Who knows what will happen in 2013, but you are OK for 2012.

Be aware that a capital gain of that amount is usually enough to trigger AMT, so you might be paying a bit more in taxes this way. It depends on your tax bracket.

You might want to get a tax professional to help you figure this out.

Audrey

 

[pb4uski]

I would pay the 15% and be thankful it is only 15%. If you have an taxable investment portfolio with unrealized losses, you could sell those positions to realize those losses to offset your capital gains. Just be aware of wash sale rules when reinvesting the proceeds.

 

[clifp]

I would pay the 15% and be thankful it is only 15%. If you have an taxable investment portfolio with unrealized losses, you could sell those positions to realize those losses to offset your capital gains. Just be aware of wash sale rules when reinvesting the proceeds.

+1

That said if there is any way you can spread the sale between this year and next that might save you a bit of money. But in general owing 40K in taxes on 250-300 profit isn't too bad

 

[pb4uski]

+1

That said if there is any way you can spread the sale between this year and next that might save you a bit of money. But in general owing 40K in taxes on 250-300 profit isn't too bad

I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?

 

[clifp]

I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?

It may have no impact, however some deductions are phased out at higher income levels, especially with respect to the alternative minimum tax. It been a long time since I have had to worry about income levels above 200K and I am sure much has changed. It maybe worth firing up turbo tax and seeing if there are any difference.

 

[pb4uski]

Ah, I see.

 

[kaneohe]

I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?

As Audrey suggested, the CG rate can be either 0 or 15% depending on what other income there is. In the situation where the CG rate was 0% on part of the CG, you would benefit by having 2 yrs worth of 0% rather than 1.

 

[pb4uski]

As Audrey suggested, the CG rate can be either 0 or 15% depending on what other income there is. In the situation where the CG rate was 0% on part of the CG, you would benefit by having 2 yrs worth of 0% rather than 1.

Got it.

 

[Animorph]

Watch out for any deduction/exemption/credit phase outs. They can increase your marginal tax rates, even for capital gains! I'm not sure that is an issue this year except for special cases (Roth contribution income limit and tuition credit phase outs would be two considerations). Though I think the more common phase outs return in 2013.

Back when I had this problem I was actually already into the phase out region. by piling all of my capital gains into one year I was able to get past the phase outs and back to a marginal 15% capital gains rate. So it was less tax for me to do it all in one year instead of two or more all within the phase out range.

Some of the phase outs can add 25% I think to your marginal rate, so watch out.

 

[wanaberetiree]

Thank you all!

Happy New Year!

 

[scrabbler1]

Be aware that a capital gain of that amount is usually enough to trigger AMT, so you might be paying a bit more in taxes this way. It depends on your tax bracket.

When I ERed in 2008, I took a company stock payout of about $300k. I chose the NUA option so nearly all of it was treated as long-term cap gains and taxed at 15%. However, the AMT was triggered and the remainder of my income (which was not very much, thankfully) was subject to extra taxes and those phaseouts of itemized deductions and personal exemption.

 

[ziggy29]

If you no longer want to hold the position, I'd just sell it all while I know the gain will only be taxed at 15%. That rate can only go up in the future, or at the very least it certainly won't go down. You may need to watch for AMT, though, and if that's the case, sell what you can until you almost hit it.

 

[ERD50]

If you no longer want to hold the position, I'd just sell it all while I know the gain will only be taxed at 15%. That rate can only go up in the future, or at the very least it certainly won't go down. You may need to watch for AMT, though, and if that's the case, sell what you can until you almost hit it.

I'm not sure, but I wonder if there are cases where it would be best to sell all in one year, because of AMT? If you are going to hit AMT, could it be best to hit it all in one year, so those deductions and other things are limited in only one year, instead of multiple?

I think you'd need to run the numbers in a tax program to be sure, but it seems it could work out either way, depending on many factors.

-ERD50