How to Minimize Capital Gains Tax -- or Avoid It Altogether!

The capital gains tax can take a big bite out of earnings, but it doesn't always have to.

May 17, 2014 at 10:35AM

Screen Shot

Source: Phillip Ingham, via Flickr

It's no secret that the capital gains tax can hit investors hard. If the value of your stocks went up between when you bought and when you sold them, you'll probably owe the government a chunk of your earnings.

But for some Americans -- in fact, far more than you probably think -- there's a way to sell your stocks and not owe the government a penny in taxes.

Of course, as with all things in our tax code, there are a number of restrictions. But for the average U.S. family, avoiding the capital gains tax altogether could provide huge long-term benefits.

But first ...
One housekeeping item to get out of the way first: For this article, I'm talking strictly about the capital gains tax from selling stocks. You can also pay this tax on other holdings, like collectibles and precious metals, but we'll ignore that for now.

The first step in eliminating the capital gains tax
If you want to avoid the taxman, you must hold shares of a company for more than a year. This qualifies your investment gains as "long-term" as opposed to "short-term." But since we're long-term investors here at The Motley Fool -- meaning we invest with a minimum three-year time horizon -- that shouldn't be too difficult.

If, however, you get a little impatient and sell shares before a year passes, you'll end up paying the same amount as your normal tax rate on any gains. What do those rates look like? Here's what they are for 2014:

Income thresholds

Tax Bracket


Married, Filing Jointly or Qualified Widow(er)

Married, Filing Separately

Head of Household
































 over $406,750

 over $457,600

 over $228,800

 over $432,200

Source: IRS.

It's important to remember that any proceeds you get from selling stocks will go toward your taxable income as well. In other words, if you are single and earned $89,350 in taxable income before selling any stocks, you would pay 28% in short-term capital gains taxes, because you bumped up a bracket.

The second requirement to avoid the capital gains tax
In short: Stop earning too much! That may sound counterproductive, but if you fall in one of the first two tax brackets for your given status, you will owe exactly nothing to the government when you sell shares and make a profit.

Here's what the tax schedule looks like for long-term capital gains:

Tax Bracket

Long-Term Capital Gains Tax















Source: IRS.

But there's a catch -- and it's a good one
Of course you might look at this and say: "Well that doesn't help me! My family brings in more than $73,800." While it may be true that there's no way to avoid paying this tax for some, it's important to remember that the dollar amounts in the first chart represent your taxable, not gross, income.

In other words, let's consider the stereotypical American household: married couple and two school-aged kids. This family will bring home $92,000 in 2014. Because of standard deductions and personal exemptions, they could sell stocks and produce $10,000 in gains and pay absolutely no tax on those gains.

Here's why that works:

Gross Income


Standard Deduction


Personal Exemptions ($3,950 each)


Taxable Income


In the end, one could argue that these exceptions don't really matter, as the average middle-income family doesn't hold many stocks in non-retirement accounts anyway. While that may be true for most, we Fools believe that long-term investing in the stock market is the best way to build wealth, no matter your income level. And as it is, the family described here would be in the top quarter of household incomes in America.

While you'll have to do your own homework to figure out if you could avoid the capital gains tax at year's end, the message is clear: For the majority of Americans, there's some benefit to at least investigating how to avoid paying the capital gains tax altogether.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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