Investors have enjoyed huge gains in the stock market over the
past five years, and many have seen their portfolios recover most
or all of their losses from the financial crisis. But if one of
your resolutions for the coming year is to lock in some of those
profits, you'll probably end up paying capital gains tax in 2014.
Let's take a quick look at the rates on the capital gains tax for
2014 and what you can do to cut your tax bill.
Capital gains tax in 2014: rates unchanged
The good news for taxpayers is that the tax rates on capital
gains for 2014 remain unchanged from current levels. This means
that depending on how long you own an investment, you could enjoy
preferential capital gains rates that can sometimes mean paying
no taxes at all on your gains.
The first question in determining how much you owe in capital
gains tax is how long you've owned the investment you're selling.
If you've held an investment for a year or less, then you'll
generally pay the same ordinary income tax rate you pay on the
rest of your income. But sales of investments you've held for
longer than a year qualify as long-term capital gains, and get
In most cases, the rates for long-term capital gains tax in
- 0% for long-term capital gains income that falls in the 10%
or 15% tax brackets for low-income taxpayers;
- 20% for long-term capital gains income that falls in the
39.6% tax bracket for high-income taxpayers;
- 15% for all other long-term capital gains income.
But those rates don't tell the whole story, because capital
gains also count as net investment income for purposes of a 3.8%
surtax on certain high-income taxpayers. If you're single and
make more than $200,000, or file a joint return and make more
than $250,000, then you'll have to pay the surtax on top of your
regular capital gains tax for 2014.
Some special rules
Unfortunately, capital gains tax rates can get even more
complicated. That's because special rates apply to certain types
For instance, collectibles like gold and silver bullion aren't
eligible for the long-term capital gains rates listed above. But
they do get a slightly lower maximum capital gains rate of 28%,
which can help certain high-bracket taxpayers. These collectibles
rates apply not just to actual physical items but also to certain
exchange-traded products that own them, including
In addition, if you've taken depreciation on an investment,
then you often have to pay tax to "recapture" that depreciation
when you sell it. The depreciation recapture rate is 25%.
How to minimize what you'll pay
The tactics for minimizing capital gains tax in 2014 are the same
as they are in most years. Holding onto investments long enough
to qualify for long-term rates can save you a bundle. If you're
prone to buy and sell frequently, then looking at tax-deferred
accounts like IRAs and 401(k)s to avoid taxable gains entirely is
a smart move. Otherwise, you could be looking at paying a lot of
capital gains tax in 2014.
Be smart about your taxes
Managing your liability on capital gains tax for 2014 is just
one way you can plan to cut your overall tax bill. In our
brand-new special report "
How You Can Fight Back Against Higher Taxes
How You Can Fight Back Against Higher Taxes," The Motley Fool's
tax experts run through what to watch out for in doing your tax
planning this year. With its concrete advice on how to cut
taxes for decades to come, you won't want to miss out.
Click here to get your copy today -- it's absolutely free.
has no position in any stocks mentioned. You can follow him on
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