With the passing of the Tax Cuts and Jobs Act in congress back in December, there will now be some considerable changes to the way we file our taxes for 2018. Yet despite these significant reforms, not all aspects of the law are affected.
In the case of capital gains taxes, the changes are rather minimal. The delineation between a capital gain and a loss still remain the same. Each is determined by the length of time during which you realized a gain on your money or suffered a loss. Assets held for over a year and then sold are still classified as a long-term gain or loss. Assets held for less than a year are considered a short-term of the same.
The tax rates on long-term gains still remain at 0%, 15% and 20% based on your particular tax bracket and short-term gains continue to remain taxed as standard income. Your tax preparer can help you determine how much you will pay based on the length of time for which you have held the asset.
If your book-keeping is current, you shouldn't have much trouble calculating what you owe on your long-term or short-term gains. A good accountant will be able to make this transition as seamless as possible for you.
Talk to Your Tax Preparer
Despite the tax rates remaining the same, there have been some changes as to how they are now applied to the various tax brackets as the thresholds have been altered slightly. Your tax preparer can help you decide which of the rates now applies to your earnings based upon your filing status and the maximum taxable income threshold in which you fall.
High earners will still have to deal with the 3.8% net investment income tax, which remains as part of the current mandates under the Affordable Care Act.
For the most part, very little has changed when it comes to long-term capital gains taxes.
Short-term Gains Taxes
Here is where the new changes in the law will have the most impact as short-term gains continue to remain taxed as part of your traditional income. Your tax preparer should know the latest updates with respect to marginal tax rates. These will change under the law.
The new tax brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37% which is why the short-term gains taxes you pay might be altered. That is, if your marginal tax rate is different for 2018. Those in the 10% or 35% bracket this year will remain there next year. Everyone else will see an adjustment.
But for those taxpayers who find themselves moved to a lower bracket based upon their income and filing status, they will see a reduction in their tax bill. It may not be a considerably large sum based on the bracket to which you belong and the profit you earn on the sale of an asset, but it's still money that stays in your pocket.
Careful Book-keeping
Depending on the performance of your assets and the gains or losses experienced, you will want to devise smart strategies for structuring sales of certain holdings that might have reached their maximum value to you as an investment. Having the ability to see what losses you've suffered can help prepare you for smart investment planning down the line, so that your losses don't offset the gains you've made over the long-term.
That's why it's smart to have a dedicated accountant keeping impeccable records of all your profits and losses on your assets. It's good practice for filing your return as well.
Moving Forward
Find a tax preparer that understands how the capital gains tax structure will shift for 2018. This is particularly important for taxpayers who expect to see more short-term capital gains than long-term, as the tax cuts included in the new law will become more evident with the former than the latter.
While it's true that most Americans will see a benefit from the new legislation, be sure to consult with your tax preparer or accountant to find out how you can save on your capital gains taxes for next year.
If you go it alone and you're not 100% sure about how the changes will affect your financial situation, you could be subject to penalties and fees, increasing the amount you might owe.
