"I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money."
--Arthur Godfrey

Taxes are a necessary part of supporting modern society and commerce. Whether they're paying for police, firemen, roads, or any of the other things that make our lives better and safer, and have helped America become wealthy and powerful, taxes are important. 

But that doesn't mean you should pay a penny more than you have to. With that in mind, we asked five of our top financial and investing experts to tell us a way to avoid, or at least reduce, capital gains taxes. Here's the list of (completely legal) things investors can do to cut their tax bill.

Brian Stoffel

Brian Stoffel
As it stands now, if your yearly income lands you in the 15% tax bracket or below, you owe nothing on capital gains. The threshold for the 15% tax bracket in 2015 depends on your filing status.

Filing Status

Maximum Threshold for 15% bracket

Single

$37,450

Married, Filing Jointly

$74,900

Married, Filing Separately

$37,450

Head of Household

$50,200

Source: IRS.

The key is that these figures are for your income after all of your deductions. A household with a husband, wife, and two children would be able to take out the standard deduction ($12,600) and four personal exemptions ($4,000 each) for a total of $28,600 in deductions. Do a little bit of reverse math, and you’ll see that this household could have an income of $103,500 ($28,600 + $74,900) and still be in the 15% tax bracket.

If you have stocks in non-tax-advantaged accounts, consider ways that you could harvest capital gains without paying taxes. For instance, if you're near the limit, you could contribute more to your 401(k) or 403(b), open up a traditional IRA, or make donations to charity. All of these could reduce your taxable income and make it easier to sell your stocks without having to pay a dime in taxes.

Rome May

Jason Hall
One of the best ways to avoid capital gains taxes on your investments is also one of the best ways to save money for retirement in general: invest in a traditional or Roth IRA.

Your contributions to either a traditional or Roth IRA grow tax-free until you retire. In other words, so long as you don't withdraw the funds, you can sell stocks inside the IRA, and your gains won't be subject to any capital gains tax at all. And there's more, too.

In some cases (particularly if your employer doesn't offer any kind of retirement plan), contributions to a traditional IRA will also allow you to deduct contributions from your taxable income the year you make them, further lowering your taxes.

Contributions to a Roth IRA can never be deducted from your income, but there's a potentially big benefit on the backside: Distributions will never be subject to any taxes, ever, so long as you wait until age 59-1/2 to take distributions. 

So, depending on whether you'd benefit from lowering your taxes today or totally eliminating them on part of your retirement income, investing in either a traditional or Roth IRA will allow you to avoid capital gains taxes and income tax.

Jordan Wathen

Jordan Wathen
Exchange-traded funds (ETFs) have a hidden advantage beyond their low expenses and liquidity: They're great at saving you money on your tax bill. 

Unlike most mutual funds, most ETFs are based on an index that rarely changes. When the indexes do change, they don't change by much. Thus, because the managers of ETFs do very little buying and selling, they generate little (or no) capital gains from year to year. In addition, the process by which ETFs shrink or grow in size naturally lowers capital gains taxes inside their portfolios. The short story is that, all else equal, an ETF will likely generate significantly fewer capital gains than an equivalent mutual fund.

Unfortunately, you do have to pay capital gains taxes when you sell an ETF at a gain, but with some smart planning, you can avoid most of that, too. Rebalance your portfolio by doing most of your buying and selling in a tax-deferred retirement account. If you're light on stocks, for example, change your exposure by putting all of your new contributions in stocks, eliminating the need to sell investments with the resulting tax bill. Ultimately, capital gains taxes are the only truly voluntary tax, meaning it's up to you to decide whether or when you should realize a gain and thus deal with the resulting tax bill.

Dan Caplinger Twitter

Dan Caplinger
There's a surefire way to avoid capital gains tax, but it comes with a catch: You have to die to take advantage of it. All joking aside, if you want to leave a bequest to your loved ones, then you can use one of the most valuable tax benefits in the tax laws right now and give your heirs what's called a "stepped-up tax basis" after your death.

How it works is simple: Typically, when you give someone shares of stock during your lifetime, the person who receives the shares takes your tax basis, and thus on a later sale, the gain that you would have made goes to the new owner. But upon the original owner's death, the tax basis of inherited assets is adjusted to the value as of the date of death (barring the use of an alternate valuation date six months after death). The net effect of the stepped-up basis is to allow your heirs to sell off their inherited shares without any income tax liability.

The rule initially made up for the fact that estate assets were subject to estate taxes. Yet even if your taxable estate is below the threshold above which taxes are owed, you can still give your heirs a stepped-up basis. That's one reason to think twice before selling appreciated shares during retirement if you want to leave a legacy to your loved ones.

Selena

Selena Maranjian
One of the most basic ways to reduce or eliminate taxable capital gains is to offset them with capital losses. You may not have sufficient losses to completely offset them, but if you're sitting on a lot of losses, then you might be able to realize many of them in a single year, wiping out most or all of your gains.

The process of offsetting gains with losses is not quite as simple as it seems -- but it's not brain surgery, either. Remember that you will have both short-term and long-term gains and losses. For tax purposes, "long term" means you have held the asset for more than a year.

Long-term gains are taxed at 15% for most of us, while some high earners can pay 20% or more, and short-term gains are taxed at your ordinary income tax rate. Thus Uncle Sam doesn't want you choosing which losses to apply to which gains.

So you first subtract short-term losses from short-term gains and subtract long-term losses from long-term gains. Then you can subtract any remaining net losses from remaining net gains. If you've been unlucky (or perhaps just strategic) and your losses for the year exceed your gains, you're allowed to deduct up to $3,000 from your taxable income ($1,500 for those who are married and filing separately). If your net losses exceed $3,000, then you can carry them forward to future years. No capital losses need to go unused, one way or another, and they may be able to reduce your capital gains taxes to zero.

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