Tax Loss Harvesting and Capital Gains Tax : Tax Strategies for Your Non IRA Accounts – Retirement Strategies for 59 Year Old’s

Troy Sharpe: You hear us talk a lot about tax planning and retirement. We usually talk about getting money out of those tax-infested retirement accounts, because that’s where most of you have your dollars, but in your non-IRA accounts, there’s also tax strategies available there that can help keep more money in your pocket through tax-loss harvesting. There’s a lot you need to know, and we’re going to cover it in this video.

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Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, Certified Financial Planner professional, and host of The Retirement Income Show. When we have investments in our non-IRA accounts, when we buy and sell something, it creates a tax if there’s a gain. Its tax is determined, first and foremost, by the length of time we’ve held that investment. If we hold something for less than 12 months, we pay short-term capital gains tax. If we hold something for more than 12 months, it’s long-term capital gains tax. That’s the first thing to understand. The timeframe determines the short-term or long-term nature, or the tax characteristic of that gain.

Now, at the end of the year, you can take all of your short-term gains and all of your short-term losses to net out a number. If we have 6,000 in gains, 3000 in losses, net those out, we have a positive $3,000 gain that we owe taxes on. Same thing with long-term gains and long-term losses. Let’s say we have a $20,000 gain and a $30,000 loss. We would have a net negative $10,000 long-term loss. Now, these two are taxed differently. This is important to understand. Your short-term gains less than 12 months are taxed at ordinary income tax rates. Now, don’t worry about this over here, ordinary income tax rates. You pay more tax on your short-term gain. There’s a disincentive for buying something and selling it within 12 months, but there can also be advantages to tax-loss harvesting strategies here.

Long-term gains, things held more than 12 months are taxed at either 0%, 15%, or 20%. If you’re a single filer, and you have income above 441,450, you pay 20% on your long-term gains. If you are married filing jointly, and have income above 496,600, you pay 20% on your long-term capital gains. Now, the IRS tax code requires that, first and foremost, tax gains of the same character must be netted against one another. We must net short-term gains against short-term losses first. Long-term gains against long-term losses first. These two can then be combined to get to one net number, but sometimes, because short-term losses are more valuable than long-term losses, because we can use short-term losses to offset up to $3,000 of income that we’ve earned from our salary or our wages or IRA distributions per year.

Because they’re tax similar to income tax rates, these are more valuable to carry forward, because we can use those losses to offset income in future years. Long-term losses, they can only be used to offset long-term gains, and those are taxed typically at more preferential rates, which is again, the 0%, 15%, or 20% rate. Now, check out the video that I’ve done about how to pay 0% on your long-term gains and dividends, to learn more about how you can get into the 0% tax bracket. We are able to do this for clients often, and it can save you a lot of money if you understand these techniques.

There’s really other taxes, surprised, and we have to be careful about when it comes to investing in the stock market or just investments in general. There’s also an additional 3.8% net investment income tax that kicks in if you make over $200,000 and you’re a single filer, or 250,000, if you’re a married filing jointly tax payer.

Lots of information here. This is a primer. Feel free to watch this video again, or reach out to us if you have questions and need an analysis done, but because of the net investment income tax, these long-term capital gains rates actually adjust. The true long-term gains and dividend rate, because the long-term gain rate, these are the same taxes we pay on your qualified dividends, but the true rates, when you take net investment income tax into the picture are 0%, 15%, 18.8%, or 23.8%. Because if you make over this amount of money to fall into the 20% bracket, guess what? That means you make more than this, and this automatically kicks in. If you are a high dollar earner, you don’t have a 20% bracket. You have a 23.8, because of the net investment income tax.

At the end of the day, what we need to be aware of is, when are we buying? When are we selling? How are we harvesting the gains and losses we have throughout the year to keep our taxes down? This is a very important part of retirement tax planning. It’s not just about taking those dollars out of the IRA. That is critically important. Those accounts are tax-infested, and you will pay taxes on them at some point. The only question is, when do you pay those taxes?

We also have to keep in mind the non-IRA accounts, and we have to understand how all of this works together inside a plan to keep our taxes down, to give us more money in retirement, so we have more income, more left later in life for medical expenses, healthcare, and to pass on to those loved ones that we want to pass the money to.

Obviously, this is a lot of information. I don’t expect you to be able to watch this video and just simply apply this completely by yourself. This is what we do every single day for a living to help people just like you, navigate through the retirement and pay less tax. If you need help doing this, there will be a link in the description down below, and of course, you can always reach out to us through our website, but this is important to keep more money in your pocket, and it’s how you optimize the decisions and retirement dollars that you have to make, and that you have, in order to have a more successful retirement.

If you like this video, share it with a friend or family member, hit that thumbs up, hit that subscribe button, and we’ll see you on the next video to keep you more connected to your money.

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