Tag: ltcg

Midyear Tax Check-In: 5 Strategic Moves to Make Right Now

Summer is the ideal time to conduct a midyear financial check-up. Waiting until December leaves very little room to adjust strategy and waiting until tax filing season means it is already too late.

Taking a proactive approach now allows you to optimize your tax position, capture available incentives, and ensure your investment strategy directly aligns with your long-term goals.

Here are 5 key tax and financial check-ins to perform today while there is still time to take action.

1. Review Your Tax Withholdings (IRS Form W-4)

If you changed jobs, got married, welcomed a child, or experienced a significant shift in income this year, update your IRS Form W-4 with your employer.

  • Avoid large tax surprises: Underwithholding results in unexpected bills and potential penalties at year-end.
  • Stop giving the IRS an interest-free loan: A huge refund means you overpaid throughout the year. The IRS does not pay interest on your money. Redirecting that excess cash flow into high-yield savings or investment strategies allows your money to work for you.
  • Action item: Use the IRS Tax Withholding Estimator online or review your recent pay stubs to verify that your withholdings match your actual year-to-date income.

2. Maximize Pre-Tax Account Limits (FSAs & HSAs)

Review your current contribution levels and balances for employer-sponsored benefit accounts.

  • Flexible Spending Accounts (FSAs): Check your remaining balances for healthcare and dependent care FSAs. Because FSA funds operate on a “use-it-or-lose-it” basis (with limited rollover or grace period options), plan out your qualified medical, dental, or dependent care expenses now rather than rushing at year-end.
  • Health Savings Accounts (HSAs): Unlike FSAs, HSA balances roll over indefinitely. If you participate in a high-deductible health plan, aim to max out your HSA contributions to capture triple-tax benefits: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses.

3. Audit Your 401(k) Pacing and Matching

While IRA contributions can be made until the April tax filing deadline, 401(k) salary deferrals must be completed through payroll by December 31.

  • Employer Match Optimization: Ensure your contributions are paced evenly across all pay periods to capture your employer’s full match. Maxing out your 401(k) too early in the year can cause you to miss out on employer matching dollars in later paychecks unless your plan includes a “true-up” provision.
  • Catch-Up Contributions: If you are age 50 or older, review your payroll deductions to ensure you are utilizing catch-up contribution limits across your retirement accounts.

4. Strategize Capital Gains, Losses, and Business Expenses

Midyear provides enough year-to-date data to accurately project your marginal tax bracket.

  • Tax-Loss Harvesting: If you hold investments in taxable brokerage accounts, evaluate opportunities to offset realized capital gains with capital losses.
  • Roth Conversions: If your income is lower than usual this year, executing a partial Roth conversion can move funds into a tax-free growth bucket at a lower tax rate.
  • Business Owners & Side Hustles: Review business income and expenses. Ensure all legitimate deductions are tracked through dedicated business accounts. If operating as an S-Corporation, evaluate your expected annual income to ensure your mix of reasonable salary and distributions remains compliant and tax-efficient.

5. Streamline and Update Your Financial Records

Proactive tax planning relies entirely on clean, real-time financial data.

  • Maintain Clean Books: Reconcile your business and personal accounts monthly using software like Quicken or QuickBooks to spot errors and monitor cash flow.
  • Track Property Basis: Keep digital copies of closing documents and receipts for major home upgrades or rental property improvements. You will need these to calculate your cost basis accurately when selling.
  • Document Retention: Store tax records, receipts, and supporting documents in a secure, organized system. As a general rule, retain records supporting tax returns for at least 3 to 7 years.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

How to Pay NO TAXES on your Long-Term Capital Gains

How to Avoid Capital Gains Tax in Mutual Funds

With positive returns in the stock market over the last three years, investors are most likely sitting on some unrealized capital gains in their taxable brokerage accounts. Read on if you are thinking about locking in some of those gains and how to minimize federal taxes on them.

First, let’s get some definitions out of the way.

A capital gain is the profit realized from the sale of a capital asset, such as stocks or bonds, for a price greater than what you paid for it, aka its cost basis.

For example, if a stock was purchased for $100 plus a $5 fee and was later sold for $150 with a $5 fee, the cost basis would be $105, and the net proceeds would be $145, resulting in a realized capital gain of $40.

For this gain to be considered long-term, you would need to have held the asset for more than one year. For example, if an asset is purchased on March 20, 2024, a sale on March 20, 2025, would be a short-term transaction, while a sale one day later on March 21, 2025, would be a long-term transaction.

Now, here’s the important part. These gains are subject to special, significantly lower tax rates of 0%, 15%, or 20%. These are typically lower than your ordinary income tax rate, which could be as high as 37%.

The following table details the specific income limits for 2025 to qualify for the various long-term capital gains (LTCG) tax rates.

Tax Filing Status0% Rate Taxable Income15% Rate Taxable Income20% Rate Taxable Income
SingleUp to $48,350$48,351 to $533,400Over $533,400
Married Filing JointlyUp to $96,700$96,701 to $600,050Over $600,050
Head of HouseholdUp to $64,750$64,751 to $566,700Over $566,700
Married Filing SeparatelyUp to $48,350$48,351 to $300,000Over $300,000

So, to be able to avoid LTCG tax in 2025, you will need to have taxable income of less than $48,300 for single filers and less than $96,700 if you’re married. It’s important to note that we are looking at taxable income, which is typically found at the bottom of your 1040 form (Line 15 on the 2024 Form 1040). Taxable income is calculated as adjusted gross income (AGI) minus standard or itemized deductions. This means an individual can strategically reduce their taxable income to fit within the 0% bracket.

For example, a single filer with a gross income of $65,000 using the standard deduction of $15,750 for 2025 and a 401k contribution of $10,900 could get their taxable income to $38,350, $10,000 below the $48,350 threshold. Therefore, a realized LTCG of $10,000 can be added to the taxable income, which would be taxed at 0% since the total taxable income is below the $48,350 threshold.

The decision to sell some winners and realize LTCGs in 2025 is not an isolated one; it must be coordinated with all other income, deduction, and contribution decisions for the year. Obviously, this strategy works best for those that already have a low taxable income, such as retirees.

Before taking any action, it is recommended to consult with a qualified tax professional, financial advisor, or attorney who can provide personalized guidance.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com