December 13, 2022

Simple Ways to Reduce Capital Gains Taxes When Selling Stocks

1 hour 5 minutes

Today’s Tax Tuesday episode answers several listener questions around end-of-the-year strategies for reducing taxes. Toby Mathis hosts with special guest Jeff Webb, CFO of Anderson Business Advisors. Online we have Ian, Troy, and Eliot helping answer your questions.

In this episode, you’ll hear our advice on the following: selling stock and how you can minimize capital gains taxes, setting up trusts - including dynasty trusts and how estate taxes are assessed there, buying a vehicle for business use and the requirements for writing off depreciation and mileage, and as always there are listener questions about real estate investments and tax scenarios, including LLC’s, partnerships, and long and short term rentals. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

"What is the best strategy for hiring your kids?" - If your kids are under 18, you do not have to pay withholdings or Social Security. If less than $12,950, it doesn't matter whether they're my dependents or not. They don't have to file a tax return.

"How was a 'dynasty' set up so it is not taxed at the estate rate after the death of the creator? Are both the trust and the beneficiary taxed in any year funds are distributed?" - The answer is probably not if you're distributing all the funds. If I just own a bunch of stock and I don't sell any, there's no income. There's no tax. They don't care what you sell it for. What they care about is what its fair market value is on the date of your passing.

"I have substantial credit card debt and private debt amounting to $120,000. I own a few rental properties. Currently own six long-term incomes and two Airbnbs. Two properties are mortgage free, and one of the current long-term tenants wishes to buy the property." They're asking for an opinion here. "Should I sell and pay off consumer debt? Should I owner-finance? If I sell and owner-finance, can I avoid capital gains?" - I would sell and pay off the consumer debt. It's probably costing a lot of money. Or, I might just refi it and pay off my consumer debt. HELOC would work.

"We want to sell some stocks to pay off some debts, but we know that if we do, we're looking at a huge capital gain. What can we do to lessen the tax that we have to pay on the capital gains?" - If you have stocks, especially stocks with big gains, there's a good chance that your brokerage house will give you a line of credit against those stocks. But, I'm probably not going to do it right now just to pay off debts. But I could borrow tax-free against those same stocks and do it.

"Is Anderson Advisors training recommending to have an operating agreement that allows the non-pro-rata and discretionary authority to make distribution on a regular timeframe or amount? For a multi-member LLC, how do we deal with yearly taxes in this case?" - We want to make sure that we have an operating agreement that says, I get to decide if I distribute money or not.

"What options are there to save money on taxes if you own an LLC? Can passive income be used to fund a retirement account such as a solo 401(k)?" – you have to get wages of some sort to fund a Solo 401(k). You cannot have wages out of a sole proprietorship. If the sole proprietorship is a passive activity, there's no way to convert that.

"I'd like to take advantage of Section 179 before the end of the year and buy a business vehicle. Can you talk in more depth about Section 179 and how depreciation and bonus depreciation work? Also, what kind of vehicles qualify for this?" – If it's under a 6000 GVWR (gross vehicular weight rating) vehicle, your limitation is $19,200 of depreciation in that first year. That includes bonus depreciation. If it is over 6000 pounds, then your bonus depreciation is pretty much unlimited. It all comes down to are you actually using it for business? And what percentage?

"What is the best way to get money from my entity, a C-corp, while limiting the amount paid in taxes personally and as a corporation?" - Repay your shareholder loans. That’s the best way to get money out of your C-corp if it already owes you money.

"If my bill would be over $500,000, what can I do before the end of the year to reduce this?" - Look at retirement plans and advance retirement plans, charitable donations, and cost segregation.

"I'm looking to attain two or more rental properties within the next year or so. Is it better to create an LLC for each property or take title under my current S-corp? I have an S-corp retail classification that I am considering dissolving. Should I just reclassify my S-corp as a real estate investment and take title in the name of the S-corp?" - Since this company was already in existence doing something else, I do not favor reclassifying. I would dissolve it.

Send us your questions, and we do about 50 events a year - check out the event schedule listed in the notes.

Resources:

Clint Coons’ Book on Amazon

https://www.amazon.com/Next-Level-Estate-Asset-Protection/dp/1950863883

Email us at Tax Tuesday

[email protected]

Tax and Asset Protection Events

https://andersonadvisors.com/real-estate-asset-protection-workshop-training/

Anderson Advisors

https://andersonadvisors.com/

Toby Mathis on YouTube

https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ

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