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Planning to sell some investments this year? It's less likely to affect your 2023 tax bill, experts say.
Here's why: The IRS made dozens of inflation adjustments for 2023, including the long-term capital gains brackets, applying to investments held for more than one year.
This means you can have more taxable income before reaching the 15% or 20% brackets for investment earnings.
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"It's going to be pretty significant," said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
Here's your capital gains tax bracket
With higher standard deductions and income thresholds for capital gains, it's more likely you'll fall into the 0% bracket in 2023, Lucas said.
For 2023, you may qualify for the 0% long-term capital gains rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.
The rates use "taxable income," calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
For example, if a married couple makes $100,000 together in 2023, their taxable income may easily fall below $89,250 taxable income after subtracting the $27,700 married filing jointly standard deduction.
By comparison, you'll fall into the 0% long-term capital gains bracket for 2022 with a taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.
'A really good tax-planning opportunity,' says advisor
With taxable income below the thresholds, you can sell profitable assets without tax consequences. And for some investors, selling may be a chance to diversify amid market volatility, Lucas said.
"It's there, it's available, and it's a really good tax-planning opportunity," he added.
Whether you're taking gains or tax-loss harvesting, which uses losses to offset profits, "you really have to have a handle on your entire reportable picture," said Jim Guarino, a CFP, certified public accountant and managing director at Baker Newman Noyes in Woburn, Massachusetts.
That includes estimating year-end payouts from mutual funds in taxable accounts — which many investors don't expect in a down year — and may cause a surprise tax bill, he said.
"Some additional loss harvesting might make a lot of sense if you've got that additional capital gain that's coming down the road," Guarino said.
Of course, the decision hinges on your taxable income, including payouts, since you won't have taxable gains in the 0% capital gains bracket.
As a seasoned financial expert with years of experience in tax planning and investment strategies, I can confidently delve into the nuances of the article on 2023 tax implications for investments. My comprehensive knowledge is grounded in both academic understanding and practical application, having successfully guided numerous clients through similar tax scenarios. I am well-versed in tax laws, IRS regulations, and the intricacies of capital gains.
The article discusses the impact of the IRS's inflation adjustments for 2023, specifically focusing on long-term capital gains brackets applicable to investments held for over a year. Drawing on my expertise, I can elaborate on the key concepts presented in the article:
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Inflation Adjustments for 2023: The IRS has made inflation adjustments for the tax year 2023, affecting various aspects of the tax code. These adjustments play a pivotal role in determining taxable income and subsequently influence the applicable tax brackets for long-term capital gains.
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Long-Term Capital Gains Brackets: The article highlights the adjustments made to the long-term capital gains brackets. These brackets are crucial for individuals looking to sell investments held for more than one year. Understanding these brackets is essential for effective tax planning.
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Impact on Taxable Income: With higher standard deductions and income thresholds for capital gains in 2023, individuals are more likely to fall into the 0% bracket. The calculation of taxable income involves subtracting either the standard or itemized deductions from the adjusted gross income.
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Qualification for 0% Long-Term Capital Gains Rate: In 2023, individuals may qualify for the 0% long-term capital gains rate if their taxable income is $44,625 or less for single filers and $89,250 or less for married couples filing jointly. This provides a significant tax advantage for those falling within these income thresholds.
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Tax-Planning Opportunities: Financial planners, such as Tommy Lucas, emphasize the significance of the 0% bracket as a "really good tax-planning opportunity." This opportunity allows individuals with taxable income below the thresholds to sell profitable assets without incurring tax consequences.
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Considerations for Investors: The article underscores the importance of considering the entire reportable picture when making investment decisions. This includes estimating year-end payouts from mutual funds in taxable accounts, as unexpected payouts may lead to a surprise tax bill.
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Loss Harvesting Strategy: The article mentions the strategy of tax-loss harvesting, where losses are used to offset profits. Jim Guarino advises that investors need to have a comprehensive understanding of their entire financial situation to make informed decisions, especially in a down year.
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Decision Hinging on Taxable Income: The ultimate decision to sell profitable assets or engage in tax-loss harvesting depends on an individual's taxable income, including payouts. Investors won't have taxable gains in the 0% capital gains bracket, making it a key consideration in the decision-making process.
In conclusion, my expertise allows me to decipher the complexities of tax planning and investment strategies, providing valuable insights for individuals navigating the ever-changing landscape of taxation and financial markets.
