I’m 52 years old and my spouse is 42 and we have $100,000 in annual income. We have a $120,000 in publicly traded stock that we would like to sell that have been held over 1 year. If we sold it all today, our capital gain would be $96,000. If they maxed out their 401(k) and 403(b) then we could put away $42,000. How else can we minimize our capital gains tax exposure here?
We would recommend that you try to stay within the 15% tax bracket or lower, in which you would pay no capital gains tax. Specifically, since your annual income is $100,000 and if you max out your retirement plans to $42,000 (assuming on a pre-tax basis), claim the standard deduction of $12,600 for joint filers, and claim two personal exemptions of $8,000, the remainder would be $37,400. The 15% tax bracket is up to $74,900 for the 2015 tax year as per IRC Section 1. This means that you could realize a gain of $37,500 by selling some of your stock while staying within the 15% ordinary income tax bracket, which translates to zero percent on long-term capital gains. You will want to be sure of the exact figures to ensure that you don’t go over the $74,900 tax bracket.
Less Retirement Plan Contributions ($42,000)
Less Standard Deduction ($12,600)
Less Personal Exemptions ($8,000)
Taxable Income Estimate $37,400
Add Capital Gain $37,500
Regular Taxable income $74,900
The other point to note is whether or not you have any losses to offset the long-term capital gains.
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IRC Section 1221