How Are Some People Paying NO TAXES on Long-Term Capital Gains and Dividends
Yes some people are paying $0 tax on their capital gains and qualified dividends, not because they are not reporting their taxable income, but because they are utilizing a good tax planning.
After Trump tax reform (Tax Cut and Job Act (TCJA)) the lower rate or preferential rate for capital gains and qualified dividends are still in effect. If your Adjusted Gross Income (AGI) is less than the lower threshold, you rate for Long-Term (LT) capital gains and dividends is zero. If your AGI is between the two thresholds, your rate is 15%, and if your AGI above the higher threshold, your rate is 20% (still much better than the highest income tax rate of 37%). Here is a summary of the tax brackets for long-term capital gains and dividends based on AGI for Singles, those who file "married filing jointly", and heads of households:
After Trump tax reform (Tax Cut and Job Act (TCJA)) the lower rate or preferential rate for capital gains and qualified dividends are still in effect. If your Adjusted Gross Income (AGI) is less than the lower threshold, you rate for Long-Term (LT) capital gains and dividends is zero. If your AGI is between the two thresholds, your rate is 15%, and if your AGI above the higher threshold, your rate is 20% (still much better than the highest income tax rate of 37%). Here is a summary of the tax brackets for long-term capital gains and dividends based on AGI for Singles, those who file "married filing jointly", and heads of households:
Tax Bracket |
Single |
Joint |
Head of Household |
0% |
Up to $38,600 |
Up to $77,200 |
Up to $51,700 |
15% |
$38,601 to $425,800 |
$77,201 to $479,000 |
$51,701 to $452,400 |
20% |
$425,801 and up |
$479,001 and up |
$452,401 and up |
For example, if you are married and file jointly with your spouse, as long as your AGI is equal or less than $77,200, your tax one long-term capital gains and dividends is zero.If your AGI is between $77,201 to $479,000, your tax rate on your LT capital gains and dividends is 15%. And if your AGI is more than $479,001, you rate is 20%.
Now if your AGI is more than $77,200, is there a way that you still pay no taxes on your LT capital gains and dividends? The answer is yes. In this case you can reduce your AGI by gifting some of your capital assets (i.e. stocks that yield dividends) to your children and grandchildren. For 2018 the annual gift tax exclusion for each individual is $15,000 per gift recipient without incurring gift tax or dipping into your unified Federal gift and estate tax exemption. For example, if you have a married daughter who has two children, you and your spouse together can give $30,000 gift to your daughter, another $30,000 to your son-in-law, and another $30,000 to each of your grandchildren without incurring any gift tax issues. by this simple strategy you can reduce your AGI by $120,000, which depending on your case, might bring your AGI below the threshold, thus make your LT capital gains and dividends tax free. Moreover, your grandchildren probably won't pay any tax once sell these capital assets, since normally children have lower income and their AGI will be lower the threshold.
You should note that this 0% tax rate applies only to long-term capital gains, qualified dividends, long term gains from investment assets (such as real estate) that are held outside of tax-favored retirement accounts, including traditional IRAs and 401(k) accounts.
For a detailed review of your accounts to find the best tax strategy for your to save in taxes and transfer your assets to the next generations tax free and and customized family wealth preservation strategies, please contact us.
Now if your AGI is more than $77,200, is there a way that you still pay no taxes on your LT capital gains and dividends? The answer is yes. In this case you can reduce your AGI by gifting some of your capital assets (i.e. stocks that yield dividends) to your children and grandchildren. For 2018 the annual gift tax exclusion for each individual is $15,000 per gift recipient without incurring gift tax or dipping into your unified Federal gift and estate tax exemption. For example, if you have a married daughter who has two children, you and your spouse together can give $30,000 gift to your daughter, another $30,000 to your son-in-law, and another $30,000 to each of your grandchildren without incurring any gift tax issues. by this simple strategy you can reduce your AGI by $120,000, which depending on your case, might bring your AGI below the threshold, thus make your LT capital gains and dividends tax free. Moreover, your grandchildren probably won't pay any tax once sell these capital assets, since normally children have lower income and their AGI will be lower the threshold.
You should note that this 0% tax rate applies only to long-term capital gains, qualified dividends, long term gains from investment assets (such as real estate) that are held outside of tax-favored retirement accounts, including traditional IRAs and 401(k) accounts.
For a detailed review of your accounts to find the best tax strategy for your to save in taxes and transfer your assets to the next generations tax free and and customized family wealth preservation strategies, please contact us.
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Email: Info@Qtaxservices.com
Phone: (424) 888-3878
Phone: (424) 888-3878