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TAX TALK: Year-end Strategies to Reduce Taxes on Investment Income

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 30, 2015 7:00:00 AM
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While economics  not tax consequences  should drive your investment decisions, it’s important to consider taxes. Higher income taxpayers may be facing the 39.6% short-term capital gains rate, the 20% long-term capital gains rate, and the 3.8% net investment income tax (NIIT).

Holding on to an investment until you’ve owned it more than one year so the gains qualify for long-term treatment may help substantially cut tax on any gain. Here are some other tax-saving strategies:

  • Use unrealized losses to absorb gains.
  • Avoid wash sales.
  • Gifts of appreciated property to family members who qualifies for the 0% rate (or the 15% rate if your rate is 20%). If you make these gifts, be careful of the Kiddie tax and gift tax.

Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on modified adjusted gross income (MAGI), strategies that reduce your MAGI — such as making retirement plan contributions — can also help you avoid or reduce NIIT liability.

These are only a few of the year-end strategies that may help you reduce taxes on your investments. For more ideas, contact us.

Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.

Topics: TAX TALK

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