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Harvesting Stock Gains: 0% Capital Gains Tax

In the December special issue of Kiplinger’s magazine, Mary Beth Franklin put together a list of tax moves that can save you big money. Normally, these tax moves are the same from year the year. Her list has a few old standbys that are also on Kay Bell’s list of year end tax moves [3] like giving to charity and checking your tax withholding [4]. However, there are also some 2009 specific ones such as the home energy tax credit and the first time homebuyer’s credit.

The one that really jumped out at me was one about capital gains. The standard year end tax advice is that you can offset gains with losses and, should you have only losses, use losses to offset $3,000 of ordinary income a year. If you lock in more than $3,000 in losses, you simply carry the excess over into the next year.

The new wrinkle they talk about is how tax filers in the 10% or 15% tax bracket, in 2009 and 2010 tax years, pay 0% capital gains tax on qualified dividends and long term capital gains. The 15% tax bracket for 2009 [5] ends at $67,900 for married couples filing jointly and $33,950 for single filers. Remember, that’s taxable income, so take your gross income and deduct exemptions, credits, and other deductions.

If you recently lost your job and saw your income fall, this might be a good time to harvest stock market gains and not pay any capital gains taxes on them.

(Photo: mcdermottd [6])