Anytime you make money – whether through your job or investments – you’ll need to pay taxes. And whenever you sell an investment or real estate at a profit, you’re required to pay a capital gains tax.

But knowing how to reduce your capital gains tax can help you save a lot of your hard-earned money, so consider the following tips to minimize your capital gains tax burden.

1. Hold your investments longer.

Investments held for one year or less are subject to a short-term capital gains tax, but long-term capital gains held for at least a year and a day are subject to a more favorable tax rate.

2. Sell losses to offset gains.

Not every investment is profitable, so if you have poorly performing assets, it might pay to cash out as capital losses can be used to offset capital gains.

3. Home renovation.

Any improvements – not repairs – that add to the value of your home can get added to the cost basis of your property, thus lowering the amount of your gain and the corresponding taxes.

4. 1031 exchange.

If you sell a rental or investment property, you can avoid capital gains and depreciation recapture taxes by investing the proceeds of your sale into a similar type of investment within 180 days.

5. Stock exchange.

Certain services offer investors with one highly appreciated security a way to trade it for an equivalently valued but more diversified portfolio to help investors avoid paying even larger capital gains taxes.

6. Exchange-traded funds.

ETFs use stock exchanges to avoid triggering capital gains taxes when stocks move in or out of the index on which the ETF is based.

7. Traditional IRA, Roth IRA, and 401k.

Traditional IRA or 401k accounts can postpone taxes to a more favorable year, and Roth accounts can avoid them altogether for the remainder of your life and that of your heirs.

8. Health Savings Accounts.

HSAs offer a tax deduction for contributing to them and receive tax-free growth as long as you use withdrawals for qualified health expenses.

9. Give stocks to family or charity.

You can give your highly appreciated securities to family members in lower brackets. And instead of giving cash to the charities you support, you can give appreciated stock.

10. Primary residence exclusion.

Individuals can exclude up to $250,000 – or $500,000 for a married couple – of capital gains from the sale of their primary residence.

Taxes can be confusing, time-consuming and frustrating. But a little planning, forethought, and strategy with these ten helpful tricks could help save you thousands – or more. Give us a call today to see how we can help you keep more of your hard-earned money. Contact Bedinghaus & Co. today.