Say you have $10,000 in cash to donate to a charity, but you also have a stock worth $10,000, which you bought for $2,000, and you don’t want to sell it.
“Give it to charity,” says CFP Fricke.
The tax-exempt charity won’t pay tax on your stock profit, and your donation will be tax-deductible.
“You don’t have to wait 30 days, because you’re not selling at a loss. You still own the same amount of stock, but now you have a higher tax basis so if you do sell in the future, your capital gains tax bill won’t be quite as big,” says Fricke.
There are lesser tactics, as well. Only buy municipal bonds if you’re in a 35 percent and over tax bracket (rare for most Americans), and choose exchange-traded funds, ETFs, , over mutual funds because you only pay taxes on profits when you sell your shares, thus avoiding annual cash distribuitions, which also complicate tax filing.
Retirees should “document, prioritize and categorize,” says CFP Branning. The idea is to “use the assets that we own to generate income in a tax efficient way.”
Determine your annual base or mandatory expenses—food, clothing, shelter, utilities, medical, and transportation—and discretionary expenses.Page 5 of 9 | Prev Page | Next Page