Do I Have To Report Long Term Capital Gains If I Don't Withdraw Money

Capital Gains Tax Rules to Be Aware Of

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Making money is great – until the IRS tries to take some of it. Still, paying taxes is a fact of life. What you may not realize is that there are a lot of capital gains tax rules and it's easy to not realize where you stand. Capital gains taxes are what you owe for the money you make when you sell certain assets. The IRS has a way of getting what they're owed, so don't be dishonest. Instead, make sure you're aware of these rules on capital gains tax, including items that can be exempt from this tax.

Offset Capital Gains with Capital Losses

One thing you can do to lower your tax burden is to offset your capital gains with any losses that you had in the year. Both should be reported on your taxes, so it's important to be aware of all your numbers and record them accurately. You can only offset gains with losses that occurred in the same tax year, so keep that in mind.

Know the Difference Between Short-Term and Long-Term Capital Gains

Short-term capital gains come from the sale of any asset you held for less than one year. Long-term capital gains come from the sale of assets you held longer than one year. Each type is taxed differently. Short-term gains are taxed at the standard rate based on your tax bracket. Long-term gains are generally taxed at a lower level that is based on your taxable income and filing status.

A capital gains tax rates chart can help you understand what to expect each tax year as you get ready to file. You might also use a capital gains tax calculator, like the one at SmartAsset.com. This will help you determine how to figure capital gains tax for your situation.

Home Sales Are Treated Differently

When you sell a home for more than you bought it for, you've realized a capital gain. However, capital gains tax on home sales are treated differently than other types of gains when it comes to taxes.

You can take a capital gain tax exemption up to $250,000 on real estate if you're single and $500,000 if you're married. So as an example, if you make $125,000 on the sale of your home you don't have to pay capital gains taxes on that. If you're married and make $600,000 off the sale of a home, you only pay capital gains taxes on $100,000 of it.

There are times that this exclusion doesn't apply:

The home wasn't your principle residence
You owned the property for less than two years in the five-year period before you sold it
You didn't live in the home for at least two years in the five-year period before you sold it
You already claimed the exclusion on another home in the two-year period before the sale of this home
You bought the property through a 1031 exchange in the past five years
You are subject to expatriate tax

Be sure to work with an accountant or CPA if you've sold a home recently so that your taxes are in order and correct. A property gains tax calculator may help you know what to expect.

How to Minimize Capital Gains

While you don't want to be dishonest in any way, there are ways to reduce your tax liability for capital gains. Of course, two have already been mentioned – hold the investment over a year, and exclude the gains from the sale of a home when you can.

Another method is to put your dividends into underperforming investments, which allows you to avoid selling strong-performing stocks to rebalance your portfolio. You can also use tax-advantaged investment accounts, such as a 401k or IRA, so that your investments can grow tax-free or tax-deferred. Finally, if your capital losses this year exceed the amount you can deduct for the year, carry the excess to next year, which will help offset next year's capital gains.

Don't Be Afraid to Ask a Professional

Handling investments can be tricky business, and you want to create the maximum benefit for yourself within the rules. Don't be shy about asking a professional for help, whether it's an investment advisor, CPA, or accountant. They can help make sure you are following the tax rules for capital gains while doing everything you can to reduce your tax burden.