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Eco-Nomics ››
Living Green, Affordably ››
Life of a Dollar ››
Tax Reduction
Tax Reduction (continued - p3 of 4)
Capital Gains Taxes
Capital gains taxes apply to all profits (over the original investment and/or expense) from the sale or exchange of precious metals,
real estate and other capital assets. Gains from capital assets owned for less than one year are considered short-term capital gains, and
are currently taxed at ordinary income tax rates. Long-term capital gains from assets which have been owned for at least one year are taxed
at 0-28%, depending primarily on the level of income and tax bracket. The first $250,000 from the sale of a primary residence of at least two
years is deductible, as is capital used to pay for business expenses (in which case gains are considered income, which can be deducted from
income taxes). Capital losses are also deductible, but only up to $3000 annually. Taxable gains are not due until the year capital is traded
or sold, and so long as capital assets are not sold or exchanged for more than the original investment, expense or value, neither income nor
capital gains taxes are due.
Gift Taxes
Gift taxes are taxable to the donor at rates of up to 45%, and apply to gifts given during a donor's lifetime in exchange for nothing in return.
A gift must be of "present interest", meaning recipients must be able to benefit from the gift that year, rather than some time in the future. The
first $1,000,000 can be deducted from the unified credit, but this is used for both gift and estate taxes. If estate taxes are owed at death, the
unified credit deduction is reduced by the amount already deducted from gift taxes during one's lifetime. Gifts given for medical or educational
expenses of another or gifts to a spouse, political or tax-exempt organization are generally not liable for gift taxes, and a gift is not taxable
as income (only income derived from a gift is considered income), so income taxes do not apply. Donors can also give up to the annual exclusion amount
(currently $13,000) to as many individuals as they wish, gift and income tax free, and recipients are likewise not usually held liable for associated
gift or income taxes.
Estate and Inheritance Taxes
Estate and/or inheritance taxes are usually levied at rates of about 45-55% on taxable estates (of all money and assets combined) transferred
to heirs upon one's death. In addition to the federal estate tax, some states (i.e., Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska,
New Jersey, Oregon, Pennsylvania and Tennessee) also impose an estate or inheritance tax at their own rates. However the unified credit amount (currently
at $3.5 million) is deductible from a taxable estate, so if the total taxable estate plus all taxable gifts during one's lifetime add up to less than
the unified credit amount, there is no estate or inheritance tax liability. Estate and inheritance taxes, as well as probate can also be
avoided by holding real estate, money, precious metals, antiques, life insurance policies and other assets in trust (although this is unnecessary
unless the value of one's taxable estate is worth more than the unified credit amount). Giving children and loved ones what you want them to have
(worth up to the annual exclusion amount for gifts during one's lifetime) before death may also be an effective and likely the most affordable method
of reducing or even eliminating gift, as well as estate and inheritance taxes.
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