Calculate Your Capital Gains Today | Capital Gains Tax Calculator
Effective investment management is much more than day-to-day monitoring. It also comes from projecting future performance and exploring ways to make each investment as efficient and as profitable as possible.
A big part of looking towards the future means anticipating and understanding capital gains taxes.
If your investments are performing well, the last thing that you want is to get hit with a surprise tax bill—and if an investment is not doing well, you’ll want to adopt a tax-friendly approach to minimize your losses as much as possible.
What is a Capital Gain?
A capital gain refers to any time you sell an asset for more than its original purchase price. The most common type of capital gain comes from selling investments, but it can also occur with other assets, like a home or a vehicle.
For example, if you purchase a vehicle for $5,000 and sell it for $8,000, you will have accrued $3,000 in capital gains.
As with any income, you’ll have to report it come tax season and pay a tax on that extra $3,000, called capital gains tax. If you spent money improving the vehicle to justify a higher selling price, that amount factors into capital losses, which will negate some of your capital gains.
Although the example above works well as a short explanation of how capital gains work, these calculations are not always quite so cut and dry.
There is a difference between investment-based capital gains and income-based capital gains—if you are buying at low prices and selling at higher as part of a business, that difference is treated as income instead of capital gain, and will fall under different tax rules.
Long-Term vs Short-Term Capital Gains
If you own your asset for more than one year, it’s classified as a long-term capital gain. Short-term capital gains are assets that have been owned for one year or less.
Interestingly, the capital gains tax will be much higher on short-term gains, often coming in at 10-20 percent more than what you would pay on long-term gains.
As a result, investors often benefit from holding onto their assets and resisting the urge to buy and sell in quick succession.
Even better, investors in lower tax brackets are often exempt from paying capital gains taxes on assets held for over a year, increasing the advantages of long-term gains.
Decreasing Capital Gains Taxes
As mentioned above, one of the easiest ways to decrease taxes on your capital gains comes from holding onto assets for as long as possible.
Aside from the time that the asset is owned, there are a few other ways to help minimize your tax burden from capital gains, listed below.
Use Dividends to Rebalance
Dividends are investment payments that typically come from stocks. Taxes on dividends are like capital gains taxes depending on how long they have been held for, but these taxes can be offset by how you choose to reinvest dividends.
Instead of applying those dividends to the same investment, you can rebalance your portfolio by applying dividends to investments that are underperforming.
You can keep the investment that is bringing in dividends, boost the investments that need attention, and avoid a capital gains tax from selling assets that are performing well.
Choose Accounts with Tax Advantages
Investments like 401(k) plans, college savings accounts, and IRAs often come with specific tax advantages.
Opting for tax-advantaged plans allows for investments to grow either tax-free or tax-deferred, which means that you could potentially pay zero taxes on your investment growth.
Use a Robo-Advisor
If you prefer to take a hands-off approach to investing, a robo-advisor is an online service that automatically manages investment portfolios.
The best robo-advisors will position portfolios to provide the best growth and highest savings possible, all with minimal monitoring or input from the investor.
To offset the burden of capital gains taxes, you’ll want to find a robo-advisor that will automatically adjust with capital gains through tax-loss harvesting and enhanced asset allocation.
Capital Gains Tax Calculators
Calculating capital gains on your own can be a tricky process, which is why it may help to use a capital gains tax calculator. Many financial companies provide free capital gains tax calculators for use online, making it easy to anticipate what you will owe due to capital gains.
Consider using the following sources for capital gains tax calculators:
AdvisoryHQ (AHQ) Disclaimer: Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info. Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.