Minimise Capital Gains Tax today. Did you know that the capital gains tax a South African individual can be assessed for has gone up by over 8% over the last two years? Do you know what that might mean for you if you sell or transfer any asset you hold, including your home? Do you know what you can do to avoid paying too much capital gains tax (without going to jail)? If you answered no to any of these questions then read on, as some of the following tips and information may save you money while increasing your financial knowledge.
What is Capital Gains Tax?
In the most basic terms, capital gain tax, often referred to as CGT, is a tax imposed on any profit (aka capital gains) that is gained from the sale of an investment. This can include stocks, bonds, property and sometimes even things like valuable jewelry. And as in some cases that tax can now be as high as 13% of the amount of the gains achieved finding ways to reduce this potential liability can produce significant financial savings. After all, who really wants to pay more taxes than they truly must?
Strategies to Help Minimise Capital Gains Tax
Use Your Retirement Account
You can use several retirement savings vehicles to avoid capital gains and defer capital gains and income taxes. With many of them you can invest using pretax funds. This means that although you’ll eventually be charged some income tax when you finally withdraw them, your funds won’t be subject to capital gains tax.
There are many different types of retirement account that can offer you this benefit and more. Consulting with a financial adviser will help you decide which ones are best for you overall, not just for avoiding paying on capital gains.
Minimise Capital Gains Tax
Be Open to Considering a Move
Technically, the allowed capital gain exclusion for a primary residence is significant enough that many taxpayers won’t have to pay capital gains tax on the sale of their homes. There is one potential exception though. Some people do ‘buy low’, in a developing neighbourhood, improve their home and then live in it for many years. As their home improves, and the neighbourhood with it, the local real estate market can become ‘hot’, resulting in a capital gain that exceeds the exclusions when they sell their home.
To avoid this, many financial experts advise that homeowners consider a move when they have almost reached the capital gain exclusion limit on their current home. Provided you live in each home for at least 2 years, the exclusion can be used multiple times, so potentially you could sell a home at a profit several times in a lifetime and still pay no capital gains tax.
Minimise Capital Gains Tax
Consciously Reduce Your Taxable Income
As an individual’s capital gain tax rate is based on their taxable income, basic tax-savings strategies can help you reduce capital gains tax paid. All this really involves is trying to maximize all possible deductions and credits prior to filing an income tax return, including donating goods to an approved charity or making sure that any planned medical procedures that will involve a co-pay are taken care of before year’s end.
To find out more about Minimising your Capital Gains Tax speak to one of our Financial Advisers today