by Kristin P. Sinclair – A Accu Tax – May 24, 2022
You have some stock and you decide to sell and take your profits. Or limit your losses. Folks have various reasons to sell a capital asset at different times. Expect to receive a 1099-B for tax reporting purposes. Well it is a bit more complicated than that. Is your sale short term, some capital asset, you have held for one year or less, or is your sale long term, some capital asset you have for a period at least a day greater than a year.
If you inherited the capital asset, it is treated as a long term asset to you the beneficiary of the capital asset.
Other things to consider, what is your income, the lower the income, the lower the tax rate on your sale of long term capital gains. The higher your income the higher the tax rates on your sale of your long term capital gains. And in certain income situations you could have a special circumstance higher rate on your capital asset gain. So if you have a tax liability you need to plan accordingly. You are going to want to consider making estimated tax payments if you have not already paid enough into the system with your withholding from other sources.
If you are selling capital assets that have been held for a year or less you will have a significant tax rate on gains once you have any tax liability for your combined sources of income. So once again if you have not withheld enough from other sources of income, you are going to want to consider making estimated tax payments.
Now let’s look at some additional planning. You decide to sell a capital asset and you have a gain. And you decide to sell a capital asset that you have a loss. The two events could balance each other out financially. You have actually helped to lower the potential tax issue on the gain. If the loss exceeds the gain you can also actually lower your overall taxable income by up to $3000.00 in the tax year. And carry over losses into future years. There are various reasons folks take various approaches in any given annual period.
Many of you have noticed that when you have holdings in certain capital asset investments. You also receive a reporting document called 1099-div. You might be using those dividends as current income to enhance your retirement. You might be using those dividends to purchase additional assets. Either way dividend income reporting is applicable. A tax issue can occur. You might also have a 1099-int issued to you and yes a tax issue can occur.
If adequate taxes have not been withheld from various sources, paying the tax obligation via an estimated payment during the year can make your filing experience less stressful.
For the higher income situations an additional tax liability also needs to be factored into your estimated payment planning. Net investment Income Tax is a 3.8% additional tax once income exceeds the established threshold.
And then if the taxpayer(s) are medicare beneficiaries they also need to consider that your medicare premiums will also be impacted by your tax situation as well in what is by the number on the year applicable two years after the current tax filing. Each year stands on it’s own merits. And resets on it’s own merits as well. But the Medicare Premium Income Adjustment will be a result of what happened from two annual periods prior. Income from 2021 which is reported in year 2022 on the tax return will impact potential medicare premiums in 2023. So yes tax planning is something which needs to be top of mind for several reasons.
Kristin P Sinclair
A Accu Tax
803-329-0615
May 24, 2022