How to Manage Capital Gains Tax
Capital gains tax can be a significant expense for many people. Fortunately, there are several strategies that you can use to help manage your capital gains tax. In this article, we discuss some effective tips for managing your capital gains.
What is Capital Gains Tax
Capital gains tax is a tax that is applied on the profit made from the sale of an asset that has appreciated in value. This tax is applied to a wide range of assets, including stocks, bonds, real estate, and artwork, among others. The amount of capital gains tax that is due is calculated as a percentage of the difference between the purchase price of the asset and the price at which it is sold.
Tips for Managing Capital Gains Tax
Hold onto Your Assets
The longer you hold on to your assets, the lower your capital gains tax will be. If you hold on to your assets for more than a year, you will qualify for the long-term capital gains tax rate, which is lower than the short-term rate.
Take Advantage of Tax Shelter Accounts
Consider investing within tax-sheltered accounts such as a Tax-Free Savings Account (TFSA), a Registered Retirement Savings Plan (RRSP), or a Registered Education Savings Plan (RESP). Investments sold within these accounts do not attract capital gains tax. However, in an RRSP a gain is realized and taxable when funds are withdrawn. For an RESP to remain non-taxable withdrawals need to be made when the beneficiary has reached post-secondary education
Harvest Your Losses
If you have an asset that has decreased in value, you can sell it to offset the gains on another asset. This is called tax-loss selling, and it can help manage your overall tax liability.
Donate to Charity
If you donate appreciated securities to charity, you do not have to pay capital gains tax on the appreciation. You can also get a tax deduction for your donation.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.