Everywhere I go, like the dandelions popping up all over my lawn, no matter hard I work at their extermination, there are cars on the side of the road and the unmistakable buzz of people with “yard sale rush” masks, rushing to see what hot deals they can find. It’s a Spring/Summer ritual and its back. A welcome sign of things slowly getting back to normal. But the biggest yard sale we have ever seen has been open and running for almost a decade now (the IRS is hosting), and still not many people are parking out front and rushing in and THEY SHOULD BE! It’s the capital gains tax rate and it’s a big sale.
Does the IRS really have “Yard Sales?” Yes, all the time!
The tax code is much more fluid than the public is truly aware of and deductions and credits come and go all the time. Deductions like mileage for business owners change with the cost of gasoline, for instance, and can go up and down annually. Often, it is actual programs that come and go, like energy tax credits or being able to transfer an IRA to a charity directly without paying income tax but still satisfying RMD requirements. Often these programs are temporary and depending on whether the government believes that they have met their objectives, sometimes expire, or may become permanent.
Capital gains taxation is one of those items and President Biden has fired the warning shot that the sale may be over soon. It’s been changed over the years, but under the original Bush tax cuts the capital gains rate was dramatically reduced, and then what was intended to be temporary has been extended again and again, with only one small alteration last year effecting the very top income earners. A totally misunderstood gem, most of the public thinks the tax would be substantial, so they are not taking action on capitalizing a gain, even though for the most part the tax would be less than what they imagine, often resulting in no tax at all! Real estate, stock portfolios (which are at an all-time high range) that likely should have some profit taking and other items that receive capital gains treatment should be closely examined, and a tax forecast completed to calculate the actual gain for clients, to replace what is imagined with a real number! Even people in “zero tax brackets” should do this to step up the cost basis on items, potentially free of tax!!
Although this may sound complicated and expensive, it is EASY TO DO!
Just grab your local tax planner and ask for a review of what profits could be taken at zero capital gain, or perhaps 10%. Get a plan in place now, when you have extra time to think about the value of taking gains or stepping up cost basis. Then set parameters for when you will execute the plan, whether immediate or “if” certain market or housing conditions come to bear, or take the leap before Biden’s talk of their ending turns into a reality. What you could potentially save in taxes by planning ahead could pay for a lot of other yard sale finds this Summer!