6. Turn Short Term Capital Gains into Long Term Capital Gains. Short term capital gains (365 days or less) are taxed at your ordinary income tax rate. Long term capital gains (366 days or more) are taxed at your more favorable capital gains rates. Before selling an investment check to see how long you have owned it. A long-term capital gain can reduce your taxes obligation by 50% versus a short term capital gain.
7. Offset Capital Gains with Capital Losses. You can offset capital gains with capital losses. Short term capital gains can be offset by short term capital losses. Long term capital gains can be offset with long term capital losses. Net capital losses (losses minus gains) can be deducted up to $3,000 per year. Amounts exceeding $3,000 can be used in future years as a ‘capital loss carryover’.
8. Convert Pre-tax Retirement Accounts to Roth Accounts in Lower Income Years. Converting pre-tax retirement accounts to Roth accounts is a taxable event, subject to your income tax rate. Completing conversion in small increments could allow you to maintain your income tax bracket. Even better – complete conversions in lower income years (e.g.: when only one spouse is working or in retirement).
9. Avoid Double Taxation on You Investments. Track the cost basis of your investments. If you reinvest dividends or capital gains distributions on your investments be sure to add them to your cost basis. If you forget to add them to your cost basis you may pay taxes twice – once when you receive them and a second time when you sell them. Be sure to add them back into your cost basis.
10. Save for Higher Education in a 529 Savings Plan. For 2017, the maximum contribution per person, per beneficiary, to a 529 higher education savings plan is $14,000. There is a special five-year pull-forward rule, allowing you to contribute $70,000 in a single year, per owner, per beneficiary. If the money is used for higher education, all principal and gains are tax free. Funding your 529 also provides valuable estate planning benefits, as contributions and gains on those contributions are exempt from estate taxes.