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As we approach the end of the year, it's time to start thinking about tax moves to save you money. You've probably heard the term “tax-loss harvesting” but may not be familiar with “tax-gain harvesting.” This is where you recognize long-term capital gains on your investments and pay no federal taxes. Let me explain why this is good for so many people, especially retirees.
Tax-gain harvesting is pretty much the opposite of tax-loss harvesting.
In tax-loss harvesting you sell securities with losses and recognize capital losses to offset gains or up to a net deduction of up to $3,000 for married filing jointly or single, or $1,500 for married filing separately. You can carry forward your losses to future years. You can't buy that same security back for the next 30 days or the IRS disallows that loss in what they call a wash sale. But with stocks and bonds nearing an all-time high, you may not have any tax-loss harvesting opportunities.
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Tax-gain harvesting is when you sell a security at a gain.
If you've held that security for more than one year, the federal government taxes it as a long-term capital gain. That tax rate happens to be at zero percent for married couples filing jointly with up to $78,750 in taxable income, or a single taxpayer with up to $39,375 in taxable income.
Since the 2019 standard deduction is $24,400 for married filing jointly and half that for singles, this means a married couple filing jointly can earn at least $103,150 and not pay federal income taxes on these long-term capital gains. Those filing single have half of this amount.